X
Reading International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2012
(U.S. dollars in thousands)
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Year Ended December 31,
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2012
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2011
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2010
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Operating Activities
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Net income (loss)
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$
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(1,406)
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$
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10,896
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$
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(12,034)
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Adjustments to reconcile net income (loss) to net cash provided by operating activities:
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(Income) loss recognized on foreign currency transactions
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(20)
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16
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(59)
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Equity (earnings) loss of unconsolidated joint ventures and entities
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(1,621)
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1,552
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(1,345)
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Distributions of earnings from unconsolidated joint ventures and entities
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1,540
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1,119
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1,352
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Loss provision on impairment of asset
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1,463
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369
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2,239
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(Gain) loss on sale of assets
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176
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(1,589)
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(352)
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Change in valuation allowance on net deferred tax assets
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1,929
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(15,028)
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--
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Gain on sale of marketable securities
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(109)
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(25)
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--
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Depreciation and amortization
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16,384
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16,960
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15,914
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Amortization of prior service costs
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304
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832
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112
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Amortization of above and below market leases
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395
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427
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924
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Amortization of deferred financing costs
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1,440
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1,276
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1,402
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Amortization of straight-line rent
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1,213
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782
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(93)
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Stock based compensation expense
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1,278
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939
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821
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Changes in assets and liabilities:
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(Increase) decrease in receivables
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(1,449)
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(1,468)
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4,363
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(Increase) decrease in prepaid and other assets
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1,907
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(7)
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(162)
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Increase in accounts payable and accrued expenses
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1,800
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833
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115
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Increase (decrease) in film rent payable
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435
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361
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(1,841)
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Increase (decrease) in taxes payable
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(2,965)
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908
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13,009
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Increase (decrease) in deferred revenue and other liabilities
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2,802
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5,100
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(1,581)
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Net cash provided by operating activities
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25,496
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24,253
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22,784
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Investing Activities
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Acquisitions
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(5,510)
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(3,917)
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(5,313)
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Acquisition deposit paid
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--
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(200)
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--
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Purchases of and additions to operating property
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(8,213)
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(5,459)
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(14,058)
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Change in restricted cash
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(6)
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(168)
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(1,838)
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Purchase of notes receivable
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(1,800)
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(2,784)
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--
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Purchase of marketable securities
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--
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--
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(42)
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Sale of marketable securities
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2,974
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143
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30
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Distributions of investment in unconsolidated joint ventures and entities
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382
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--
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229
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Proceeds from sale of property
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14,078
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6,750
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--
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Cinema sale proceeds from noncontrolling shareholder
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--
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1,867
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--
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Purchase of time deposits
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(8,000)
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--
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--
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Net cash used in investing activities
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(6,095)
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(3,768)
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(20,992)
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Financing Activities
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Repayment of long-term borrowings
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(62,602)
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(126,780)
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(15,450)
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Proceeds from borrowings
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47,007
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105,311
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23,525
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Capitalized borrowing costs
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(782)
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(774)
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(1,347)
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Repurchase of Class A Nonvoting Common Stock
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--
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(747)
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(251)
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Proceeds from the exercise of stock options
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308
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--
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248
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Noncontrolling interest contributions
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3,350
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233
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225
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Noncontrolling interest distributions
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--
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(654)
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(1,406)
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Net cash provided by (used in) financing activities
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(12,719)
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(23,411)
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5,544
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Effect of exchange rate on cash
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252
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(45)
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2,620
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Increase (decrease) in cash and cash equivalents
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6,934
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(2,971)
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9,956
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Cash and cash equivalents at the beginning of the period
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31,597
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34,568
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24,612
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Cash and cash equivalents at the end of the period
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$
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38,531
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$
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31,597
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$
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34,568
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Supplemental Disclosures
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Cash paid during the period for:
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Interest on borrowings
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$
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14,526
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$
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16,957
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$
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15,133
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Income taxes
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$
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5,666
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$
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2,688
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$
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792
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Non-Cash Transactions
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Noncontrolling interest contribution from bonus accrual
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255
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--
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--
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Foreclosure of a mortgage note to obtain title of the underlying property
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--
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1,984
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--
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Reduction in note payable associated with acquisition purchase price adjustment
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--
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--
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4,381
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Deemed distribution
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--
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--
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877
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Capital lease asset addition
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--
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--
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4,697
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Capital lease asset obligation
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--
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--
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5,573
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See accompanying notes to consolidated financial statements.
Reading International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Note 1 – Nature of Business
Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was incorporated in 1999 and, following the consummation of a consolidation transaction on December 31, 2001 (the “Consolidation”), is now the owner of the consolidated businesses and assets of Reading Entertainment, Inc. (“RDGE”), Craig Corporation (“CRG”), and Citadel Holding Corporation (“CDL”). Our businesses consist primarily of:
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the development, ownership and operation of multiplex cinemas in the United States, Australia, and New Zealand; and
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the development, ownership, and operation of retail and commercial real estate in Australia, New Zealand, and the United States.
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Note 2 – Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements of RDI and its subsidiaries include the accounts of RDGE, CRG, and CDL. Also consolidated are Australia Country Cinemas Pty, Limited (“ACC”), a company in which we own a 75% interest and whose only assets are our leasehold cinemas in Townsville and Dubbo, Australia; the Angelika Film Center LLC (“AFC”) in which we own a 50% controlling membership interest and whose only asset is the Angelika Film Center in Manhattan, and Shadow View Land and Farming, LLC in which we own a 50% controlling membership interest and whose only asset is a 202 acre land parcel in Coachella, California .
Our investment interests are accounted for as unconsolidated joint ventures and entities, and accordingly, our unconsolidated joint ventures and entities in 20% to 50% owned companies are accounted for on the equity method. These investment interests include our
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25% undivided interest in the unincorporated joint venture that owns 205-209 East 57th Street Associates, LLC (Place 57) a limited liability company formed to redevelop our former cinema site at 205 East 57th Street in Manhattan;
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33.3% undivided interest in the unincorporated joint venture that owns the Mt. Gravatt cinema in a suburb of Brisbane, Australia;
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33.3% undivided interest in Rialto Distribution, an unincorporated joint venture engaged in the business of distributing art film in New Zealand and Australia; and
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50% undivided interest in the unincorporated joint venture that owns Rialto Cinemas.
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Refinancing Long-Term Debt
Liberty Theatre Term Loans
As our Liberty Theater Term Loans are due to mature on April 1, 2013, the December 31, 2012 outstanding balance of this debt of $6.4 million is classified as current on our balance sheet. We intend to refinance the property’s debt.
Cinemas 1, 2, 3 Loan
On June 28, 2012, Sutton Hill Properties LLC (“SHP”), one of our consolidated subsidiaries, paid off its Eurohypo AG, New York Branch loan with a new $15.0 million term loan (the “Sovereign Bank Loan”) from Sovereign Bank, N.A. The Sovereign Bank Loan has a one-year term ending on June 27, 2013, with a one year extension option to June 26, 2014 subject to an extension fee equal to 1.00% of the ending principal balance and a
compliance requirement with certain special covenants. Currently, we intend to exercise this extension option. See Note 12 –
Notes Payable
.
U.S. Credit Facility
On October 31, 2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bank of America (the “BofA Revolver”) of $30.0 million with an interest rate of between 2.50% and 3.00% above LIBOR and an expiration date of October 31, 2017. In addition, Bank of America increased our existing $3.0 million line of credit to $5.0 million. See Note 12 –
Notes Payable
.
Australian Credit Facility
On June 24, 2011, we replaced our Australian Corporate Credit Facility with BOS International (“BOSI”) of $115.8 million (AUS$110.0 million) with the proceeds from a new credit facility from National Australia Bank (“NAB”) of $110.5 million (AUS$105.0 million). The outstanding balance of this loan of $101.7 million (AUS$100.5 million) was classified as a current liability at December 31, 2010 on our 2010 Consolidated Balance Sheet as we had not refinanced the then currently maturing facility prior to the annual report issuance date. See Note 12 –
Notes Payable
.
Cash Position
Our cash position at December 31, 2012 was $46.5 million including an $8.0 million time deposit in Australia. Of the $46.5 million, $17.5 million was in Australia, $22.7 million was in the U.S., and $6.3 million was in New Zealand. As part of our main credit facilities in Australia, New Zealand and the U.S., we are subject to certain debt covenants which limit the transfer or use of cash outside of the various regional subsidiaries in which the cash is held. As such, at December 31, 2012, we have approximately $7.5 million of cash worldwide that is not restricted by loan covenants.
At December 31, 2012, we had undrawn funds of $10.4 million (AUS$10.0 million) available under our NAB line of credit in Australia, $9.9 million (NZ$12.0 million) available under our New Zealand Corporate Credit facility, and $3.0 million available under our BofA Revolver in the U.S. Accordingly, we believe that we have sufficient borrowing capacity under our various credit facilities, together with our $46.5 million cash balance, to meet our anticipated short-term working capital requirements.
Accounting Principles
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents for which cost approximates fair value.
Time Deposits
Time deposits are cash depository investments in which the original maturity of the investments is greater than 90 days. During May 2012, we purchased $8.0 million in U.S. dollar time deposits in Australia which mature on January 3, 2013 having an interest rate of 0.48%.
Receivables
Our receivables balance is composed primarily of credit card receivables, representing the purchase price of tickets, concessions, or coupon books sold at our various businesses. Sales charged on customer credit cards are collected when the credit card transactions are processed. The remaining receivables balance is primarily made up of the goods and services tax (“GST”) refund receivable from our Australian taxing authorities and the management fee receivable from the managed cinemas. We have no history of significant bad debt losses and we have established an allowance for accounts that we deem uncollectible.
Inventory
Inventory is composed of concession goods used in theater operations and is stated at the lower of cost (first-in, first-out method) or net realizable value.
Investment in Marketable Securities
We account for investments in marketable debt and equity securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10 -
Investments—Debt and Equity Securities
(“ASC 320-10”). Our investment in Marketable Securities includes equity instruments that are classified as available for sale and are recorded at market using the specific identification method. In accordance with ASC 320-10, available for sale securities are carried at their fair market value and any difference between cost and market value is recorded as unrealized gain or loss, net of income taxes, and is reported as accumulated other comprehensive income in the consolidated statement of stockholders’ equity. Premiums and discounts of any debt instruments are recognized in interest income using the effective interest method. Realized gains and losses and declines in value expected to be other-than-temporary on available for sale securities are included in other expense. We evaluate our available for sale securities for other than temporary impairments at the end of each reporting period. These investments have a cumulative unrealized gain of $9,000 included in other comprehensive income at December 31, 2012. For the twelve months ended December 31, 2012, 2011, and 2010, our net unrealized losses were $2,000, $32,000, and $478,000, respectively. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available for sale are included in interest income.
Restricted Cash
We classify restricted cash as those cash accounts for which the use of funds is restricted by contract or bank covenant. At December 31, 2012 and 2011, our restricted cash balance was $2.5 million and $2.4 million, respectively, which were primarily funds held in escrow for our Mackie litigation settlement.
Fair Value of Financial Instruments
The carrying amounts of our cash and cash equivalents, accounts receivable, restricted cash, and accounts payable approximate fair value due to their short-term maturities. See Note 16 –
Fair Value of Financial Instruments
.
Derivative Financial Instruments
In accordance with FASB ASC 815-20 –
Derivatives and Hedging
(“ASC 815-20”), we carry all derivative financial instruments on our consolidated balance sheets at fair value. Derivatives are generally executed for interest rate management purposes but are not designated as hedges in accordance with ASC 815-20. Therefore, changes in market values are recognized in current earnings.
Operating property
Operating property consists of land, buildings and improvements, leasehold improvements, fixtures and equipment which we use to derive operating income associated with our two business segments, cinema exhibition and real estate. Buildings and improvements, leasehold improvements, fixtures and equipment initially recorded at the lower of cost or fair market value and depreciated over the useful lives of the related assets. In accordance with US GAAP, land is not depreciated.
Investment and Development Property
Investment and development property consists of land, new buildings and improvements under development, and their associated capitalized interest and other development costs that we are either holding for development, currently developing, or holding for investment appreciation purposes. These properties are initially recorded at the lower of cost or fair market value. Within investment and development property are building and improvement costs directly associated with the development of potential cinemas (whether for sale or lease), the development of entertainment themed retail centers (“ETRCs”), or other improvements to real property. As incurred, we expense start-up costs (such as pre-opening cinema advertising and training expense) and other costs
not directly related to the acquisition and development of long-term assets. We cease capitalization on a development property when the property is complete and ready for its intended use, or if activities necessary to get the property ready for its intended use have been substantially curtailed. During the year-ended December 31, 2009, we decided to curtail our current development progress on certain Australian and New Zealand land development projects. As a result, these properties are considered held for development and we have not capitalized interest for these projects and will not do so, until the development work recommences.
Incident to the development of our Burwood property, in late 2006, we began various fill and earth moving operations. In late February 2007, it became apparent that our cost estimates with respect to site preparation were low, as the extent of the contaminated soil present at the site, a former brickworks site, was greater than we had originally believed. As we were not the source of this contamination, we are not currently under any legal obligation to remove this contaminated soil from the site. However, as a practical matter, we intend to address these issues in connection with our planned redevelopment of the site as a mixed-use retail, entertainment, commercial and residential complex. As of December 31, 2012, we estimate that the total site preparation costs associated with the removal of this contaminated soil will be $17.7 million (AUS$17.1 million) and as of that date we had incurred a total of $8.6 million (AUS$8.3 million) of these costs. In accordance with FASB ASC 410-30-25 –
Environmental Obligations
, contamination clean up costs that improve the property from its original acquisition state are capitalized as part of the property’s overall development costs.
Accounting for the Impairment of Long Lived Assets
We assess whether there has been impairment in the value of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is then measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. We recorded impairment losses of approximately $1.5 million, $369,000, and $2.2 million, relating to certain of our operating property and investment and development property for the years ended December 31, 2012, 2011, and 2010, respectively. The impairments reflect our estimates of fair value which were based on appraisals or a discounted income approach with market based assumptions. Our impairment calculations contain uncertainties and use significant estimates and judgments, and are based on the information available at the balance sheet date. Future economic and other events could negatively impact the evaluation and future material impairment charges may become necessary. We evaluate our joint venture investments for other than temporary impairments in accordance with FASB ASC 318-10 –
Investments—Equity Method and Joint Ventures
. For a further explanation of our 2012 impairment losses see Note 7 –
Investment and Development Property
.
Variable Interest Entity
Our determination of the appropriate accounting method with respect to our investment in Reading International Trust I, which is considered a Variable Interest Entity (“VIE”), is based on FASB ASC 810-10. We account for this VIE, of which we are not the primary beneficiary, under the equity method of accounting.
We determine if an entity is a VIE under FASB ASC 810-10 based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis, if necessary. In a quantitative analysis, we incorporate various estimates, including estimated future cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenarios occurring. If the entity is a VIE, we then determine whether we consolidate the entity as the primary beneficiary. We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. If we made different judgments or utilized different estimates in these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity. Our investments in unconsolidated entities in which we have the ability to exercise significant influence over operating and financial policies, but do not control, or entities which are variable interest entities in which we are not the primary beneficiary are accounted for under the equity method.
We carry our investment in the Reading International Trust I using the equity method of accounting because we have the ability to exercise significant influence (but not control) over operating and financial policies of the entity. We eliminate transactions with an equity method entity to the extent of our ownership in such an entity. Accordingly, our share of net income (loss) of this equity method entity is included in consolidated net income (loss). We have no implicit or explicit obligation to further fund our investment in Reading International Trust I.
Goodwill and Intangible Assets
We use the purchase method of accounting for all business combinations. Goodwill and intangible assets with indefinite useful lives are not amortized, but instead, tested for impairment at least annually. Prior to conducting our goodwill impairment analysis, we assess long-lived assets for impairment in accordance with FASB ASC 360-15 -
Impairment or Disposal of Long-Lived Assets
(“ASC 360-15”). We then perform the impairment analysis at the reporting unit level (one level below the operating segment level) (see Note 10 –
Goodwill and Intangibles
) as defined by FASB ASC 350-35
– Goodwill Subsequent Measurement
(“ASC 350-35”). This analysis requires management to make a series of critical assumptions to: (1) evaluate whether any impairment exists; and (2) measure the amount of impairment. We estimate the fair value of our reporting units as compared with their current book value. If the estimated fair value of a reporting unit is less than the book value, then impairment is deemed to have occurred. In estimating the fair value of our reporting units, we primarily use the income approach (which uses forecasted, discounted cash flows to estimate the fair value of the reporting unit). For the year ended December 31, 2010, in accordance with the sale agreement of Consolidated Entertainment, the initial aggregate purchase price of the cinemas was adjusted down by $16.9 million resulting in a corresponding decrease in goodwill associated with the purchased cinemas. No further adjustments are anticipated for this transaction. The resulting net goodwill balance associated with this transaction is $1.7 million at December 31, 2012 and 2011.
Discontinued Operations and Properties Held for Sale
In accordance with ASC 360-15, the revenue, expenses and net gain on dispositions of operating properties and the revenue and expenses on properties classified as held for sale are reported in the consolidated statements of operations as discontinued operations for all periods presented through the date of the respective disposition. The net gain (loss) on disposition is included in the period the property is sold. In determining whether the income and loss and net gain on dispositions of operating properties is reported as discontinued operations, we evaluate whether we have any significant continuing involvement in the operations, leasing or management of the sold property in accordance with FASB ASC 205-20 –
Presentation of Financial Statements – Discontinued Operations
(“ASC 205-20”). If we were to determine that there was any significant continuing involvement, the income and loss and net gain on dispositions of the operating property would not be recorded in discontinued operations.
A property is classified as held for sale when certain criteria, as set forth under ASC 360-15, are met. At such time, we present the respective assets and liabilities related to the property held for sale separately on the balance sheet and cease to record depreciation and amortization expense. Properties held for sale are reported at the lower of their carrying value or their estimated fair value less the estimated costs to sell. For a description of the properties previously held for sale see Note 9 –
Transfer of Held for Sale Real Estate to Continuing Operations and Related Items
. These asset transfers from held for sale to operating resulted in a reclassification of their operating results which is reflected in our December 31, 2012, 2011, and 2010 Consolidated Statements of Operations.
Revenue Recognition
Revenue from cinema ticket sales and concession sales are recognized when sold. Revenue from gift certificate sales is deferred and recognized when the certificates are redeemed. Rental revenue is recognized on a straight-line basis in accordance with FASB ASC 840-20-25 –
Leases Having Both Scheduled Rent Increases and Contingent Rents
(“ASC 840-20-25”).
Deferred Leasing/Financing Costs
Direct costs incurred in connection with obtaining tenants and/or financing are amortized over the respective term of the lease or loan on a straight-line basis. Direct costs incurred in connection with financing are amortized over the respective term of the loan utilizing the effective interest method, or straight-line method if the
result is not materially different. In addition, interest on loans with increasing interest rates and scheduled principal pre-payments are also recognized on the effective interest method.
Advertising Expense
We expense our advertising as incurred. The amount of our advertising expense was $3.8 million, $3.8 million, and $3.8 million for the years ended December 2012, 2011, and 2010, respectively.
Other Income/Expense
For the years ended December 31, 2012, 2011, and 2010, we recorded gains/(losses) on the settlement of litigation of ($194,000), $0, and ($808,000), respectively, included in other income (expense).
Depreciation and Amortization
Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are generally as follows:
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Building and improvements
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15-40 years
|
Leasehold improvement
|
Shorter of the life of the lease or useful life of the improvement
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Theater equipment
|
7 years
|
Furniture and fixtures
|
5 – 10 years
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Translation of Non-U.S. Currency Amounts
The financial statements and transactions of our Australian and New Zealand cinema and real estate operations are reported in their functional currencies, namely Australian and New Zealand dollars, respectively, and are then translated into U.S. dollars. Assets and liabilities of these operations are denominated in their functional currencies and are then translated at exchange rates in effect at the balance sheet date. Revenue and expenses are translated at the average exchange rate for the reporting period. Translation adjustments are reported in “Accumulated Other Comprehensive Income,” a component of Stockholders’ Equity.
The carrying value of our Australian and New Zealand assets fluctuates due to changes in the exchange rate between the U.S. dollar and the Australian and New Zealand dollars. The exchange rates of the U.S. dollar to the Australian dollar were $1.0393 and $1.0251 as of December 31, 2012 and 2011, respectively. The exchange rates of the U.S. dollar to the New Zealand dollar were $0.8267 and $0.7805 as of December 31, 2012 and 2011, respectively.
Income Taxes
We account for income taxes under FASB ASC 740-10 –
Income Taxes
(“ASC 740-10”), which prescribes an asset and liability approach. Under the asset and liability method, deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense (benefit) is the tax payable (refundable) for the period and the change during the period in deferred tax assets and liabilities.
In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies. We then include assumptions about the amount of projected future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. In evaluating the
objective evidence that historical results provide, we consider three years of cumulative operating income (loss). In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
ASC 740-10 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
We recognize tax liabilities in accordance with ASC 740-10 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.
Earnings Per Share
Basic earnings per share is calculated using the weighted average number of shares of Class A and Class B Stock outstanding during the years ended December 31, 2012, 2011, and 2010, respectively. Diluted earnings per share is calculated by dividing net earnings available to common stockholders by the weighted average common shares outstanding plus the dilutive effect of stock options and unvested restricted stock. We had issued stock options to purchase 672,350, 622,350, and 622,350 shares of Class A Common Stock at December 31, 2012, 2011, and 2010, respectively, at a weighted average exercise price of $6.24, $5.65, and $5.65 per share, respectively. Stock options to purchase 185,100, 185,100, and 185,100 shares of Class B Common Stock were outstanding at the years ended December 31, 2012, 2011, and 2010, respectively, at a weighted average exercise price of $9.90, $9.90, and $9.90 per share, respectively. In accordance with FASB ASC 260-10 –
Earnings Per Share
(“ASC 260-10”), for any years that we record losses from continuing operations before discontinued operations, the effect of the stock options and restricted stock are anti-dilutive and accordingly excluded from the diluted earnings per share computation (see Note 4 –
Earnings (Loss) Per Share
).
Real Estate Purchase Price Allocation
We allocate the purchase price to tangible assets of an acquired property (which includes land, building and tenant improvements) based on the estimated fair values of those tangible assets assuming the building was vacant. Estimates of fair value for land are based on factors such as comparisons to other properties sold in the same geographic area adjusted for unique characteristics. Estimates of fair values of buildings and tenant improvements are based on present values determined based upon the application of hypothetical leases with market rates and terms.
We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any capitalized above-market lease values as a reduction of rental income over the remaining non-cancelable terms of the respective leases. We amortize any capitalized below-market lease values as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.
We measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to
execute similar leases including leasing commissions, legal, and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination as part of the transaction.
The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
We amortize the value of in-place leases to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event may the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense.
These assessments have a direct impact on revenue and net income. If we assign more fair value to the in-place leases versus buildings and tenant improvements, assigned costs would generally be depreciated over a shorter period, resulting in more depreciation expense and a lower net income on an annual basis. Likewise, if we estimate that more of our leases in-place at acquisition are on terms believed to be above the current market rates for similar properties, the calculated present value of the amount above market would be amortized monthly as a direct reduction to rental revenue and ultimately reduce the amount of net income.
Business Acquisition Valuations
The assets and liabilities of businesses acquired are recorded at their respective preliminary fair values as of the acquisition date in accordance with FASB ASC 805-10 –
Business Combinations
(“ASC 805-10”). Upon the acquisition of real properties, we allocate the purchase price of such properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases, based in each case on their fair values. We use independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building). We also perform valuations and physical counts of property, plant and equipment, valuations of investments and the involuntary termination of employees, as necessary. Costs in excess of the net fair values of assets and liabilities acquired are recorded as goodwill.
We record and amortize above-market and below-market operating leases assumed in the acquisition of a business in the same way as those under real estate acquisitions.
The fair values of any other intangible assets acquired are based on the expected discounted cash flows of the identified intangible assets. Finite-lived intangible assets are amortized using the straight-line method of amortization over the expected period in which those assets are expected to contribute to our future cash flows. We do not amortize indefinite lived intangibles and goodwill.
Fair Value of Financial Instruments
FASB ASC 820-10 –
Fair Value Measurements and Disclosures
(“ASC 820-10”) defines fair value, establishes a framework for measuring fair value in GAAP and provides for expanded disclosure about fair value measurements. ASC 820-10 applies to all other accounting pronouncements that require or permit fair value measurements.
The fair value of our financial assets and liabilities are disclosed in Note 16 –
Fair Value of Financial Instruments
to our consolidated financial statements. We generally determine or calculate the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments while estimating for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow.
The financial assets and liabilities recorded at fair value in our consolidated financial statements are marketable securities and interest rate swaps/cap. The carrying amounts of our cash and cash equivalents, restricted cash and accounts payable approximate fair value due to their short-term maturities. The remaining financial assets and liabilities that are only disclosed at fair value are comprised of notes payable, TPS, and other debt instruments. We estimated the fair value of our secured mortgage notes payable, our unsecured notes payable, TPS and other debt instruments by performing discounted cash flow analyses using an appropriate market discount rate. We calculated the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or LIBOR rates for variable-rate debt, for maturities that correspond to the maturities of our debt adding an appropriate credit spreads derived from information obtained from third-party financial institutions. These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt.
Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820-10 applies include:
·
|
Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination;
|
·
|
Long-lived assets measured at fair value due to an impairment assessment under ASC 360-15; and
|
·
|
Asset retirement obligations initially measured under FASB ASC 410-20 –
Asset Retirement Obligations
(“ASC 410-20”).
|
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
Accounting Pronouncements Adopted During 2012
FASB ASU No. 2011-05 - Comprehensive Income (Topic 220): Presentation of Comprehensive Income
ASU No. 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. This amendment is effective for our Company in 2012 and was applied retrospectively.
FASB ASU No. 2011-08 - Intangibles—Goodwill and Other
ASU No. 2011-08 relates to a change in the annual test of goodwill for impairment. The statement permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. This amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. For our goodwill impairment testing, at least for now, we have continued to use a quantitative approach.
New Accounting Pronouncements
No new pronouncements were made pertaining to our Company’s accounting during the year ended December 31, 2012.
Note 3 – Stock Based Compensation and Employee Stock Option Plan
Stock Based Compensation
As part of his compensation package, Mr. James J. Cotter, our Chairman of the Board and Chief Executive Officer, was granted $950,000, $750,000, and $750,000, respectively, of restricted class A non-voting common stock (“Class A Stock”) for each of the years ended December 31, 2012, 2011, and 2010, respectively. The 2012, 2011, and 2010 stock grants of 217,890, 155,925, and 174,825 shares, respectively, were granted with stock grant prices of $4.36, $4.81, and $4.29, respectively. Mr. Cotter’s stock compensation is granted fully vested with a five-year restriction on sale. As of December 31, 2012, the 2012 stock grant had not yet been issued to Mr. Cotter. During 2012, we issued to Mr. Cotter 155,925 of Class A Stock for his 2011 vested stock grants which had a stock grant price of $4.81 and a grant date fair value of $750,000.
During 2012, we issued 9,680 shares as a one-time stock grant of Class A Nonvoting shares to our employees valued at $44,000. During 2010, as part of Mr. John Hunter’s, our Chief Operating Officer, compensation package, $100,000 of restricted Class A Stock vested relating to Mr. Hunter’s 2009 and 2008 stock grants. During 2010, we issued to Mr. Hunter 5,154 shares related to his 2009 vested stock compensation.
During the years ended December 31, 2012, 2011, and 2010, we recorded compensation expense of $994,000, $750,000, and $754,000, respectively, for the vesting of all our restricted stock grants. The following table details the grants and vesting of restricted stock to our employees (dollars in thousands):
|
|
|
|
|
|
|
|
|
Non-Vested Restricted Stock
|
|
Weighted Average Fair Value at Grant Date
|
Outstanding – January 1, 2010
|
--
|
$
|
--
|
Granted
|
174,825
|
|
750
|
Vested
|
(174,825)
|
|
(750)
|
Outstanding – December 31, 2010
|
--
|
$
|
--
|
Granted
|
155,925
|
|
750
|
Vested
|
(155,925)
|
|
(750)
|
Outstanding – December 31, 2011
|
--
|
$
|
--
|
Granted
|
227,570
|
|
994
|
Vested
|
(227,570)
|
|
(994)
|
Outstanding – December 31, 2012
|
--
|
$
|
--
|
On April 1, 2010, we terminated our then existing contractual relationship with Doug Osborne, at that time the chief executive officer of our Landplan real estate operations. Mr. Osborne’s incentive interest in our various Landplan projects, which was valued at $0, was revoked at that time. Mr. Osborne continues to provide services to us on a non-exclusive independent contractor basis.
Employee Stock Option Plan
We have a long-term incentive stock option plan that provides for the grant to eligible employees, directors, and consultants of incentive or nonstatutory options to purchase shares of our Class A Nonvoting Common Stock. Our 1999 Stock Option Plan expired in November 2009, and was replaced by our new 2010 Stock Incentive Plan, which was approved by the holders of our Class B Voting Common Stock in May 2010. For the stock options exercised during the years ended December 31, 2012 and 2010, we issued 95,000 and 90,000 shares of Class A Stock for cash to employees of the corporation under this stock based compensation plan at exercise prices of $4.68 and $2.76, respectively. During the year ended December 31, 2011, we did not issue any shares under this stock based compensation plan.
FASB ASC 718-10 –
Stock Compensation
(“ASC 718-10”) requires that all stock-based compensation be recognized as an expense in the financial statements and that such costs be measured at the fair value of the award. We estimate the valuation of stock based compensation using a Black-Scholes option-pricing model.
When our tax deduction from an option exercise exceeds the compensation cost resulting from the option, a tax benefit is created. ASC 718-10 requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows. For the years ended December 31, 2012, 2011, and 2010, there was no impact to the consolidated statements of cash flows because there were no recognized tax benefits during these periods.
ASC 718-10 requires companies to estimate forfeitures. Based on our historical experience, we did not estimate any forfeitures for the options granted during the years ended December 31, 2012, 2011, and 2010.
In accordance with ASC 718-10, we estimate the fair value of our options using the Black-Scholes option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility, and the expected life of the options. The dividend yield is excluded from the calculation, as it is our present intention to retain all earnings. We estimated the expected stock price volatility based on our historical price volatility measured using daily share prices back to the inception of the Company in its current form beginning on December 31, 2001. We estimate the expected option life based on our historical share option exercise experience during this same period. We expense the estimated grant date fair values of options issued on a straight-line basis over their vesting periods.
No options were granted during 2011. For the 206,000 and 157,700 options granted during 2012 and 2010, respectively, we estimated the fair value of these options at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
2012
|
2010
|
Stock option exercise price
|
$5.94
|
$5.17
|
Risk-free interest rate
|
1.71%
|
2.74%
|
Expected dividend yield
|
--
|
--
|
Expected option life
|
7.20 yrs
|
7.23 yrs
|
Expected volatility
|
32.15%
|
33.01%
|
Weighted average fair value
|
$2.62
|
$1.88
|
Using the above assumptions and based on our use of the modified prospective method, we recorded $285,000, $189,000, and $67,000 in compensation expense for the total estimated grant date fair value of stock options that vested during the years ended December 31, 2012, 2011, and 2010, respectively. At December 31, 2012 total unrecognized estimated compensation cost related to non-vested stock options granted was $342,000 which is expected to be recognized over a weighted average vesting period of 2.38.
No options were exercised in 2011. The total realized value of stock options exercised during the years ended December 31, 2012 and 2010 was $136,000 and $138,000, respectively. The grant date fair value of options that vested during the years ending December 31, 2012, 2011, and 2010 was $285,000, $189,000, and $67,000, respectively. We recorded cash received from stock options exercised of $308,000 and $248,000 during the years ended December 31, 2012 and 2010, respectively. Additionally, in 2012, 41,000 options were exercised having a realized value of $103,000 for which we did not receive any cash but the employee elected to receive the net incremental number of in-the-money shares of 15,822 based on an exercise price of $4.01 and a market price of $6.53. At December 31, 2012, the intrinsic, unrealized value of all options outstanding, vested and expected to vest, was $509,000 of which 100.0% were currently exercisable.
Pursuant to both our 1999 Stock Option Plan and our 2010 Stock Incentive Plan, all stock options expire within ten years of their grant date. The aggregate total number of shares of Class A Stock and class B voting common stock authorized for issuance under our 2010 Stock Option Plan is 1,250,000. At the time that options are exercised, at the discretion of management, we will either issue treasury shares or make a new issuance of shares to the employee or board member. Dependent on the grant letter to the employee or board member, the required service period for option vesting is between zero and four years.
We had the following stock options outstanding and exercisable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted Average
|
|
Common Stock
|
Average Exercise
|
Common Stock
|
|
Price of
|
|
Options
|
Price of Options
|
Exercisable
|
|
Exercisable
|
|
Outstanding
|
Outstanding
|
Options
|
|
Options
|
|
Class A
|
Class B
|
Class A
|
Class B
|
Class A
|
Class B
|
Class A
|
Class B
|
Outstanding-January 1, 2010
|
589,750
|
150,000
|
$
|
5.51
|
$
|
10.24
|
534,750
|
150,000
|
$
|
5.62
|
$
|
10.24
|
Granted
|
122,600
|
35,100
|
$
|
5.17
|
$
|
8.47
|
|
|
|
|
|
|
Exercised
|
(90,000)
|
--
|
$
|
2.76
|
$
|
--
|
|
|
|
|
|
|
Outstanding- December 31, 2010
|
622,350
|
185,100
|
$
|
5.65
|
$
|
9.90
|
449,750
|
150,000
|
$
|
6.22
|
$
|
10.24
|
No activity during the period
|
--
|
--
|
$
|
--
|
$
|
--
|
|
|
|
|
|
|
Outstanding-December 31, 2011
|
622,350
|
185,100
|
$
|
5.65
|
$
|
9.90
|
544,383
|
167,550
|
$
|
5.86
|
$
|
10.05
|
Granted
|
206,000
|
--
|
$
|
5.94
|
$
|
--
|
|
|
|
|
|
|
Exercised
|
(136,000)
|
--
|
$
|
4.68
|
$
|
--
|
|
|
|
|
|
|
Expired
|
(20,000)
|
--
|
$
|
3.75
|
$
|
--
|
|
|
|
|
|
|
Outstanding-December 31, 2012
|
672,350
|
185,100
|
$
|
6.24
|
$
|
9.90
|
546,350
|
185,100
|
$
|
6.26
|
$
|
9.90
|
The weighted average remaining contractual life of all options outstanding, vested and expected to vest, at December 31, 2012 and 2011 were approximately
5.32
and 4.13 years, respectively. The weighted average remaining contractual life of the exercisable options outstanding at December 31, 2012 and 2011 was approximately
4.28
and 3.85 years, respectively.
Note 4 – Earnings (Loss) Per Share
For the three years ended December
31, 2012, we
calculated the following earnings (loss) per share (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Income (loss) from continuing operations
|
$
|
(509)
|
$
|
8,068
|
$
|
(12,747)
|
Income (loss) from discontinued operations
|
|
(405)
|
|
1,888
|
|
97
|
Net income (loss) attributable to Reading International, Inc. common shareholders
|
|
(914)
|
|
9,956
|
|
(12,650)
|
Basic income (loss) per common share attributable to Reading International, Inc. shareholders:
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
$
|
(0.02)
|
$
|
0.36
|
$
|
(0.56)
|
Earnings (loss) from discontinued operations, net
|
|
(0.02)
|
|
0.08
|
|
--
|
Basic income (loss) per share attributable to Reading International, Inc. shareholders
|
$
|
(0.04)
|
$
|
0.44
|
$
|
(0.56)
|
Diluted income (loss) per common share attributable to Reading International, Inc. shareholders:
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
$
|
(0.02)
|
$
|
0.35
|
$
|
(0.56)
|
Earnings (loss) from discontinued operations, net
|
|
(0.02)
|
|
0.08
|
|
--
|
Diluted income (loss) per share attributable to Reading International, Inc. shareholders
|
$
|
(0.04)
|
$
|
0.43
|
$
|
(0.56)
|
Weighted average shares of common stock – basic
|
|
23,028,596
|
|
22,764,666
|
|
22,781,392
|
Weighted average shares of common stock – diluted
|
|
23,028,596
|
|
22,993,135
|
|
22,781,392
|
For the year ended
December 31, 2011, the weighted average common stock – dilutive included 228,469 of incremental shares of exercisable in-the-money stock options and unissued restricted Class A Stock. For the years ended December 31, 2012 and 2010, we recorded losses from continuing operations. As such, the 284,054 and 235,517, respectively, of incremental shares of exercisable in-the-money stock options and unissued restricted Class A Stock were excluded from the computation of diluted loss per share because they were anti-dilutive in those periods. In addition, 791,286, 734,906, and 746,758 of out-of-the-money stock options were excluded from the computation of diluted earnings (loss) per share for the years ended December 31, 2012, 2011, and 2010, respectively. The total number of in-the-money stock options, out-of-the-money stock options, and unissued restricted Class A Stock that could potentially dilute basic earnings per share was 1,075,340, 963,375, and 982,275 for the years ended December 31, 2012, 2011, and 2010, respectively
.
Note 5 – Prepaid and Other Assets
Prepaid and other assets are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
Prepaid and other current assets
|
|
|
|
|
Prepaid expenses
|
$
|
1,150
|
$
|
1,168
|
Prepaid taxes
|
|
855
|
|
781
|
Deposits
|
|
373
|
|
605
|
Other
|
|
1,198
|
|
1,227
|
Total prepaid and other current assets
|
$
|
3,576
|
$
|
3,781
|
|
|
|
|
|
Other non-current assets
|
|
|
|
|
Other non-cinema and non-rental real estate assets
|
$
|
1,134
|
$
|
1,134
|
Long-term deposits
|
|
212
|
|
264
|
Deferred financing costs, net
|
|
2,230
|
|
3,725
|
Notes receivable
|
|
2,000
|
|
851
|
Tenant inducement asset
|
|
716
|
|
1,064
|
Straight-line rent asset
|
|
2,775
|
|
2,776
|
Other
|
|
2
|
|
--
|
Total non-current assets
|
$
|
9,069
|
$
|
9,814
|
Investment in Notes Receivable
Notes Receivable
We currently hold two
promissory notes secured by assets in the United States and New Zealand. The purchase price of these notes aggregate to $2.0 million
and they are carried on our balance sheet at their purchase price.
Note 6 – Operating Property
Property associated with our operating activities is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Operating property
|
|
2012
|
|
2011
|
Land
|
$
|
69,370
|
$
|
62,873
|
Building and improvements
|
|
136,225
|
|
134,967
|
Leasehold improvements
|
|
45,391
|
|
41,380
|
Fixtures and equipment
|
|
108,169
|
|
103,872
|
Total cost
|
|
359,155
|
|
343,092
|
Less: accumulated depreciation
|
|
(156,377)
|
|
(139,312)
|
Operating property, net
|
$
|
202,778
|
$
|
203,780
|
Depreciation expense for operating property was $14.9 million, $14.9 million, and $13.0 million for the three years ended December 31, 2012, 2011, and 2010, respectively.
In 2011, we recorded impairment losses totaling $65,000 on two of our cinema properties. We did not record an impairment charge for our operating assets during 2012 or 2010.
Note 7 – Investment and Development Property
Investment and development property is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Investment and Development Property
|
|
2012
|
|
2011
|
Land
|
$
|
77,020
|
$
|
75,384
|
Construction-in-progress (including capitalized interest)
|
|
17,902
|
|
15,315
|
Investment and development property, net
|
$
|
94,922
|
$
|
90,699
|
During the year-ended December 31, 2009, we decided to curtail our current development progress on certain Australian and New Zealand land development projects. As a result, we did not capitalize interest on these projects during 2012, 2011, and 2010 and we will not capitalize interest for these projects until development work recommences.
Coachella, California Land
Based on a December 2012 appraisal of the property, the fair value of the property was $4.0 million resulting in a $1.5 million impairment to the carrying value of the asset. As noted below, this property is 50% owned by Mr. James J. Cotter who shares in any impairment loss to the extent of his ownership interest.
Note 8 – Acquisitions, Disposals, and Assets Held for Sale
2012 Transactions
Indooroopilly - Sale
On November 20, 2012, we sold our Indooroopilly property for $12.4 million (AUS$12.0 million). As its book value at the time of sale was $12.5 million (AUS$12.1 million), we recorded a loss on sale in the form of an impairment expense of $318,000 (AUS$306,000) for the year ended December 31, 2012 which included the cost to sell the property. The net book value of this property’s assets is included in assets held for sale on our Consolidated Balance Sheets at December 31, 2011 and the operational results are included in income (loss) from discontinued operations on our Condensed Consolidated Statements of Operations for the three years ended December 31, 2012. The condensed statement of operations for Indooroopilly is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Revenue
|
$
|
793
|
$
|
825
|
$
|
809
|
Less: operating expense
|
|
560
|
|
593
|
|
712
|
Less: impairment expense
|
|
318
|
|
--
|
|
--
|
Income (loss) from discontinued operations, net of tax
|
$
|
(85)
|
$
|
232
|
$
|
97
|
Taringa - Sale
On February 21, 2012, we sold our three properties of approximately 1.1 acres in the Taringa area of Brisbane, Australia for $1.9 million (AUS$1.8 million). Because the net carrying amounts of these properties were greater than the total sale price, we recorded an impairment expense for these properties of $369,000 (AUS$365,000) for the year ended December 31, 2011.
Coachella, California Land - Acquisition
On January 10, 2012, Shadow View Land and Farming, LLC, a limited liability company owned by our Company, acquired a 202-acre property, zoned for the development of up to 843 single-family residential units, located in the City of Coachella, California. The property was acquired at a foreclosure auction for $5.5 million. The property was acquired as a long-term investment in developable land. Half of the funds used to acquire the land were provided by Mr. James J. Cotter, our Chairman, Chief Executive Officer and controlling shareholder. Upon the approval of our Conflicts Committee, these funds were converted on January 18, 2012 into a 50% interest in Shadow View Land and Farming, LLC. We are the managing member of this company. See Note 20 –
Noncontrolling Interests
.
2011 Transactions
Cal Oaks Cinema - Acquisition
On August 25, 2011, we purchased a 17-screen multiplex in Murrieta, California (the “CalOaks Cinema”) for $4.2 million made up of $3.9 million of cash and a $250,000 holdback note for certain offset charges to the purchase price (see Note 12 –
Notes Payable).
On May 15, 2011, in conjunction with the contemplated purchase of the CalOaks cinema, we lent $2.3 million to the owner of the CalOaks cinema in exchange for a 90-day note receivable. The note was secured by three cinemas’ leases and had an annualized interest of 9.9%. On August 25, 2011, as part of the CalOaks cinema acquisition, this note was repaid.
Elsternwick Classic Cinema - Sale
On April 14, 2011, we sold our 66.7% share of the 5-screen Elsternwick Classic cinema located in Melbourne, Australia to our joint venture partner for $1.9 million (AUS$1.8 million) and recognized a gain on sale of a discontinued operation of $1.7 million (AUS$1.6 million).
2010 Transactions
Manukau Land - Acquisition
On April 30, 2009, we entered into an agreement to purchase for $3.6 million (NZ$5.2 million) a property adjacent to our Manukau property. An initial deposit of $26,000 (NZ$50,000) was paid upon signing of the agreement, a second deposit of $175,000 (NZ$258,000) was paid in the second quarter of 2009 and a third deposit of $531,000 (NZ$773,000) was paid in August 2009. The fourth and final purchase payment of $2.9 million (NZ$4.1 million) was made on March 31, 2010 completing our acquisition of this land parcel.
Note 9 – Transfer of Held for Sale Real Estate to Continuing Operations and Related Items
2011 Transactions
Lake Taupo Motel
During the fourth quarter of 2010, we listed for sale the residential units of our Lake Taupo property and the adjoining 1.0-acre parcel located in Lake Taupo, New Zealand. A portion of this property was previously improved with a motel in which we recently renovated the property’s units to be condominiums and have enhanced the property value with residential apartment entitlements for the adjoining vacant land. At December 31, 2011, we had not yet sold the property. Pursuant to ASC 360-10-45, as twelve months had passed since this announcement and we did not meet the criteria to classify this property as held for sale, we reclassified $5,000 of income from discontinued operations to the components of income from continuing operations for the year ended December 31, 2010. As a result of the transfer of the asset from held for sale to continuing operations, we recorded a loss for 2011 of $37,000 (NZ$48,000) to measure the property at the lower of its carrying amount, adjusted for depreciation and amortization expense that would have been recognized had the asset been continuously classified as a continuing operational asset, or its fair value at the date of the decision not to sell. We continue to discuss with potential buyers and plan to monetize the property in time.
Burwood Development Property
In May 2010, we announced our intent to sell and began actively marketing our 50.6-acre Burwood development site in suburban Melbourne. At June 30, 2011, we had not yet achieved that aim. Pursuant to ASC 360-10-45, as twelve months had passed since this announcement and we did not meet the criteria to classify this property as held for sale, we reclassified the current carrying value of this property of $53.4 million (AUS$52.1 million) from assets held for sale to investment and development property
on our December 31, 2011 consolidated balance sheet. We continue to evaluate our options concerning this property.
2012 and 2010 Transactions
There were no transfers of held for sale real estate to continuing operations or related items in 2012 or 2010.
Note 10 – Goodwill and Intangible Assets
Goodwill associated with our business combinations is tested for impairment at the beginning of the fourth quarter with continued evaluation through the end of the fourth quarter of every year. The fair value estimates of each of our reporting units is based on the projected profits and cash flows of the related assets using each reporting unit’s weighted average cost of capital as a discount rate. As a result of this test, whereby the Step 1 Test was passed for all reporting units, it was determined that there is no impairment to our goodwill as of December 31, 2012 or 2011.
At December 31, 2012 or 2011, our goodwill consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
Cinema
|
|
Real Estate
|
|
Total
|
Balance as of January 1, 2012
|
$
|
17,053
|
$
|
5,224
|
$
|
22,277
|
Foreign currency translation adjustment
|
|
621
|
|
--
|
|
621
|
Balance at December 31, 2012
|
$
|
17,674
|
$
|
5,224
|
$
|
22,898
|
|
|
|
|
|
|
|
2011
|
|
Cinema
|
|
Real Estate
|
|
Total
|
Balance as of January 1, 2011
|
$
|
16,311
|
$
|
5,224
|
$
|
21,535
|
Goodwill acquired during 2011
|
|
539
|
|
--
|
|
539
|
Foreign currency translation adjustment
|
|
203
|
|
--
|
|
203
|
Balance at December 31, 2011
|
$
|
17,053
|
$
|
5,224
|
$
|
22,277
|
We have intangible assets other than goodwill that are subject to amortization which are being amortized over various periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
Beneficial Leases
|
|
Trade name
|
|
Other Intangible Assets
|
|
Total
|
Gross carrying amount
|
$
|
24,284
|
$
|
7,254
|
$
|
458
|
$
|
31,996
|
Less: Accumulated amortization
|
|
12,873
|
|
3,059
|
|
403
|
|
16,335
|
Total, net
|
$
|
11,411
|
$
|
4,195
|
$
|
55
|
$
|
15,661
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
Beneficial Leases
|
|
Trade name
|
|
Other Intangible Assets
|
|
Total
|
Gross carrying amount
|
$
|
24,471
|
$
|
7,220
|
$
|
456
|
$
|
32,147
|
Less: Accumulated amortization
|
|
11,238
|
|
2,553
|
|
357
|
|
14,148
|
Total, net
|
$
|
13,233
|
$
|
4,667
|
$
|
99
|
$
|
17,999
|
We amortize our beneficial leases over the lease period, the longest of which is approximately 30 years; our trade name using an accelerated amortization method over its estimated useful life of 45 years; and our option fee and other intangible assets over 10 years. For the years ended December 31, 2012, 2011, and 2010, our amortization expense was $2.2 million, $2.4 million, and $2.6 million, respectively. The estimated amortization expense in the five succeeding years and thereafter is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2013
|
$
|
2,222
|
|
|
2014
|
|
1,960
|
|
|
2015
|
|
1,845
|
|
|
2016
|
|
1,595
|
|
|
2017
|
|
1,165
|
|
|
Thereafter
|
|
6,874
|
|
|
Total future amortization expense
|
$
|
15,661
|
|
Note 11 – Investments in and Advances to Unconsolidated Joint Ventures and Entities
Investments in and advances to unconsolidated joint ventures and entities are accounted for under the equity method of accounting except for Rialto Distribution as described below. As of December 31, 2012 and 2011, these investments in and advances to unconsolidated joint ventures and entities include the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Interest
|
|
2012
|
|
2011
|
Rialto Distribution
|
33.3%
|
$
|
--
|
$
|
--
|
Rialto Cinemas
|
50.0%
|
|
1,561
|
|
1,586
|
205-209 East 57
th
Street Associates, LLC
|
25.0%
|
|
60
|
|
33
|
Mt. Gravatt
|
33.3%
|
|
6,094
|
|
6,220
|
Total investments
|
|
$
|
7,715
|
$
|
7,839
|
For the years ended December 31, 2012, 2011, and 2010, we recorded our earnings (loss) from our unconsolidated joint ventures and entities as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Rialto Distribution
|
$
|
199
|
$
|
383
|
$
|
286
|
Rialto Cinemas
|
|
209
|
|
(72)
|
|
64
|
205-209 East 57
th
Street Associates, LLC
|
|
27
|
|
33
|
|
89
|
Mt. Gravatt
|
|
1,186
|
|
1,038
|
|
906
|
Total investor share of earnings
|
|
1,621
|
|
1,382
|
|
1,345
|
Rialto Cinemas impairment recorded at investor level
|
|
--
|
|
(2,934)
|
|
--
|
Total equity earnings
|
$
|
1,621
|
$
|
(1,552)
|
$
|
1,345
|
Rialto Distribution
Effective October 1, 2005, we purchased for $694,000 (NZ$1.0 million) a 33.3% interest in Rialto Distribution. Rialto Distribution, an unconsolidated joint venture, is engaged in the business of distributing art film in New Zealand and Australia. We own an undivided 33.3% interest in the assets and liabilities of the joint venture. Prior to January 1, 2010, we treated our interest as an equity method interest in an unconsolidated joint venture. However, during 2009, the reporting company of Rialto Distribution reported a net loss of $2.2 million (NZ$3.2 million). Our share of this loss was $734,000 (NZ$1.1 million). Due to this significant loss, we determined that the goodwill associated with Rialto Distribution’s investment in the film distribution business was fully impaired. Therefore, we recorded our share of the impairment loss of $331,000 (NZ$434,000) as a part of our equity losses resulting in a net zero balance at December 31, 2009. As of January 1, 2010, we treat our interest as a cost method interest in an unconsolidated joint venture. For the years ended December 31, 2012 2011, and 2010 we received $199,000 (NZ$245,000), $383,000 (NZ$500,000), and $286,000 (NZ$400,000), respectively, in distributions from our interest in Rialto Distribution which we recorded as earnings at the time of receipt.
Rialto Cinemas
Effective October 1, 2005, we purchased, indirectly, a beneficial ownership of 100% of the stock of Rialto Entertainment for $4.8 million (NZ$6.9 million). Rialto Entertainment was at the time of purchase a 50% joint venture partner with Village and Sky in Rialto Cinemas, the largest art cinema circuit in New Zealand. The Village and Sky ownership interest have subsequently been sold to Greater Union, an Australian based cinema chain operator. We own an undivided 50% interest in the assets and liabilities of the joint venture and treat our interest as an equity method interest in an unconsolidated joint venture. Subsequent to the February 22, 2011 earthquake in
Christchurch, the joint venture obtained a termination agreement with the landlord associated with the Christchurch cinema lease (see Note 26 –
Casualty Loss
). As of December 31, 2012, following the closure of three cinemas with 15 screens, the joint venture owned two cinemas with 13 screens in the New Zealand cities of Auckland and Dunedin. As part of our investment impairment analysis for 2011, we determined that the value of our investment was impaired. For this reason, we recorded an impairment charge to our investment in Rialto Cinemas of $2.9 million (NZ$3.8 million) during December 31, 2011 and included it in our equity loss from unconsolidated joint ventures and entities for the year ended December 31, 2011.
205-209 East 57th Street Associates, LLC
We own a non-managing 25% membership interest in 205-209 East 57th Street Associates, LLC a limited liability company formed to redevelop our former cinema site at 205 East 57th Street in Manhattan.
During the fourth quarter of 2010, the last residential condominium was sold for $900,000 from which we recorded earnings of $64,000 and received distributions totaling $293,000. During 2012, as a consequence of a purchaser’s dispute, a condominium which was previously sold was repurchased, renovated, and resold for a small gain resulting in additional earnings to us of $27,000.
Mt. Gravatt
We own an undivided 33.3% interest in Mt. Gravatt, an unincorporated joint venture that owns and operates a 16-screen multiplex cinema in Australia. The condensed balance sheets and statements of operations of Mt. Gravatt are as follows (dollars in thousands):
Mt. Gravatt Condensed Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2012
|
|
2011
|
Current assets
|
|
|
$
|
1,318
|
$
|
1,935
|
Noncurrent assets
|
|
|
|
4,078
|
|
3,832
|
Current liabilities
|
|
|
|
1,111
|
|
846
|
Noncurrent liabilities
|
|
|
|
43
|
|
60
|
Members’ equity
|
|
|
|
4,242
|
|
4,861
|
Mt. Gravatt Condensed Statements of Operations Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Total revenue
|
$
|
15,236
|
$
|
14,097
|
$
|
12,909
|
Net income
|
|
3,513
|
|
3,045
|
|
2,711
|
Malulani Investments, Limited
On June 26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real estate company. On July 2, 2009, Magoon Acquisition and Development, LLC (“Magoon LLC”) and we entered into a settlement agreement (the “Settlement Terms”) with respect to a lawsuit against certain officers and directors of Malulani Investments, Limited (“MIL”). Under the Settlement Terms, Magoon LLC and we received $2.5 million in cash, a $6.8 million three-year 6.25% secured promissory note issued by The Malulani Group (“TMG”), and a ten-year “tail interest” in MIL and TMG in exchange for the transfer of all ownership interests in MIL and TMG held by both Magoon, LLC and RDI and for the release of all claims against the defendants in this matter. A gain on the transfer of our ownership interest in MIL of $268,000 was recognized during 2009 as a result of this transaction. The tail interest allows us to participate in certain distributions made or received by MIL, TMG, and in certain cases, the shareholders of TMG. The tail interest, however, continues only for a period of ten years and we cannot assure that we will receive any distributions from this tail interest. During 2011 and 2010, we received $191,000 and $635,000 in interest on the promissory note and, on June 14, 2011, we received $6.8 million with respect to the principal and interest owed on this note. We believe that further amounts are owed under the note and we have begun litigation to collect such amounts. Any further collections will be recognized when received.
Berkeley Cinemas – Botany
We previously had investments in three joint ventures with Everard Entertainment Ltd in New Zealand. On June 6, 2008, we sold our last investment in these joint ventures of the Botany Downs Cinema to our joint venture partner. During 2010, we finalized our claims regarding the sale of this cinema resulting in an additional gain on sale of $384,000 (NZ$554,000) for the year ended 2010 included in other income (expense) on our Consolidated Statement of Operations.
Combined Condensed Financial Information
The combined condensed financial information for all of the above unconsolidated joint ventures and entities accounted for under the equity method is as follows; therefore, these financials only exclude Rialto Distribution (dollars in thousands):
Condensed Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2012
|
|
2011
|
Current assets
|
|
|
$
|
3,488
|
$
|
5,245
|
Noncurrent assets
|
|
|
|
6,621
|
|
6,611
|
Current liabilities
|
|
|
|
2,197
|
|
3,031
|
Noncurrent liabilities
|
|
|
|
751
|
|
723
|
Members’ equity
|
|
|
|
7,161
|
|
8,102
|
Condensed Statements of Operations Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Total revenue
|
$
|
26,138
|
$
|
28,017
|
$
|
24,944
|
Net income
|
|
4,590
|
|
4,021
|
|
4,779
|
Note 12 - Notes Payable
Notes payable are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Note Payable or Security
|
December 31, 2012
|
December 31, 2011
|
Maturity Date
|
|
December 31, 2012
|
|
December 31, 2011
|
Trust Preferred Securities
|
4.31%
|
9.22%
|
April 30, 2027
|
$
|
27,913
|
$
|
27,913
|
Australian NAB Corporate Term Loan
|
5.82%
|
7.20%
|
June 30, 2014
|
|
75,349
|
|
88,671
|
Australian NAB Corporate Revolver
|
5.82%
|
7.20%
|
June 30, 2014
|
|
--
|
|
--
|
Australian Shopping Center Loans
|
-
|
-
|
2012-2014
|
|
208
|
|
384
|
New Zealand Corporate Credit Facility
|
4.70%
|
4.15%
|
March 31, 2015
|
|
23,148
|
|
21,854
|
US Bank of America Revolver
|
3.26%
|
-
|
October 31, 2017
|
|
30,000
|
|
--
|
US Bank of America Line of Credit
|
3.21%
|
-
|
October 31, 2017
|
|
2,007
|
|
--
|
US Cinema 1, 2, 3 Term Loan
|
-
|
6.73%
|
July 1, 2012
|
|
--
|
|
15,000
|
US Cinema 1, 2, 3 Term Loan
|
5.24%
|
-
|
June 27, 2013
|
|
15,000
|
|
--
|
US GE Capital Term Loan
|
-
|
5.50%
|
October 31, 2012
|
|
--
|
|
32,188
|
US Liberty Theaters Term Loans
|
6.20%
|
6.20%
|
April 1, 2013
|
|
6,429
|
|
6,583
|
US Nationwide Loan 1
|
8.50%
|
8.50%
|
February 21, 2013
|
|
593
|
|
597
|
US Sanborn Note
|
-
|
7.00%
|
January 31, 2012
|
|
--
|
|
250
|
US Sutton Hill Capital Note – Related Party
|
8.25%
|
8.25%
|
December 31, 2013
|
|
9,000
|
|
9,000
|
US Union Square Theatre Term Loan
|
5.92%
|
5.92%
|
May 1, 2015
|
|
6,950
|
|
7,174
|
Total
|
|
|
|
$
|
196,597
|
$
|
209,614
|
Trust Preferred Securities
On February 5, 2007, we issued $51.5 million in 20-year fully subordinated notes to a trust that we control, which in turn issued $51.5 million in securities. Of the $51.5 million, $50.0 million in TPS were issued to unrelated investors in a private placement and $1.5 million of common trust securities were issued by the trust to Reading called “Investment in Reading International Trust I” on our balance sheet. Effective May 1, 2012, the interest rate on our Trust Preferred Securities changed from a fixed rate of 9.22%, which was in effect for the past five years, to a variable rate of three month LIBOR plus 4.00%, which will reset each quarter through the end of the loan unless we exercise our right to refix the rate at the current market rate at that time. There are no principal payments due until maturity in 2027 when the notes and the trust securities are scheduled to be paid in full. We may pay off the debt after the first five years at 100% of the principal amount without any penalty. The trust is essentially a pass through, and the transaction is accounted for on our books as the issuance of fully subordinated notes. The credit facility includes a number of affirmative and negative covenants designed to monitor our ability to service the debt. The most restrictive covenant of the facility requires that we must maintain a fixed charge coverage ratio at a certain level. However, on December 31, 2008, we secured a waiver of all financial covenants with respect to our TPS for a period of nine years (through December 31, 2017), in consideration of the payment of $1.6 million, consisting of an initial payment of $1.1 million, a payment of $
270,000
made in December 2011, and a contractual obligation to pay $270,000 in December 2014.
The private placement generated $49.9 million in net proceeds, which were used principally to make our investment in the common trust securities of $1.5 million, to retire all of our bank indebtedness in New Zealand of $34.4 million (NZ$50.0 million) and to retire a portion of our bank indebtedness in Australia of $5.8 million (AUS$7.4 million). During the years ended December 31, 2012, 2011, and 2010, we paid $1.9 million, $2.5 million, and $2.5 million, respectively, in preferred dividends to the unrelated investors that are included in interest expense. At December 31, 2012 and 2011, we had preferred dividends payable of $198,000 and $416,000, respectively. Interest payments for this loan are required every three months.
During the first quarter of 2009, we took advantage of the then current market illiquidity for securities such as our TPS to repurchase $22.9 million in face value of those securities through an exchange of $11.5 million worth of marketable securities purchased during the period for the express purpose of executing this exchange transaction with the third party holder of these TPS. During the twelve months ended 2009, we amortized $106,000 of discount to interest income associated with the holding of these securities prior to their extinguishment. On April 30, 2009, we extinguished $22.9 million of these TPS, which resulted in a gain on retirement of subordinated debt (TPS) of
$10.7 million net of loss on the associated write-off of deferred loan costs of $749,000 and a reduction in our Investment in Reading International Trust I from $1.5 million to $838,000.
Australia
NAB Australian Corporate Term Loan
On June 24, 2011, we replaced our Australian Corporate Credit Facility of $115.8 million (AUS$110.0 million) with BOS International (“BOSI”) with a new credit facility from National Australia Bank (“NAB”) of $110.5 million (AUS$105.0 million). NAB provided us term debt of $94.7 million (AUS$90.0 million) and $9.5 million (AUS$9.0 million) in line of credit which we used combined with our cash of $1.6 million (AUS$1.5 million) to pay off our $105.8 million (AUS$100.5 million) of outstanding BOSI debt.
The new three-tiered credit facility from NAB (the “NAB Credit Facility”) has a term of three years, due and payable June 30, 2014, and comprised of a term loan with a December 31, 2012 balance of $75.3 million (AUS$72.5 million); a $10.4 million (AUS$10.0 million) revolving facility for which we do not have a balance at December 31, 2012; and a $5.2 million (AUS$5.0 million) guarantee facility. This loan to Reading Entertainment Australia commenced on June 24, 2011 with an interest rate of between 2.90% and 2.15% above the BBSY bid rate. This credit facility is secured by substantially all of our cinema assets in Australia and is only guaranteed by several of our wholly owned Australian subsidiaries. The NAB Credit Facility requires annual principal payments of between $7.3 million (AUS$7.0 million) and $9.4 million (AUS$9.0 million) which we anticipate will be paid from Reading Entertainment Australia operating cash flows. The covenants of the NAB Credit Facility include a fixed charge coverage ratio, a debt service cover ratio, an operating leverage ratio, a loan to value ratio, and other financial covenants. Additionally, the NAB Credit Facility allows us to transfer only $4.2 million (AUS$4.0 million) per year outside of Australia. On August 2, 2011, we paid down our NAB revolver by $9.7 million (AUS$9.0 million) resulting in a zero balance on that date. In December 2012, as part of the sale of our Indooroopilly property, we paid down $6.3 million (AUS$6.0 million) on our NAB term loan.
In conjunction with this NAB Credit Facility, we entered into a five-year interest swap agreement which swaps over 100% of our $75.3 million (AUS$72.5 million) variable rate term loan (decreasing in line with scheduled principal repayments) based on BBSY, for a 5.50% fixed rate. For further information regarding our swap agreements, see Note 13 –
Derivative Instruments
.
Australian Shopping Center Loans
In July 2004, as part of the acquisition of the Anderson Cinema Circuit, we assumed the three loans on the Epping, Rhodes, and West Lakes properties. The total amount assumed on the transaction date was $1.5 million (AUS$2.1 million) and the loans carry no interest as long as we make timely principal payments of approximately $182,000 (AUS$175,000) per year. Early repayment is possible without penalty. The only recourse on default of these loans is the security on the properties. During 2009 and 2010, we were in dispute with the landlord. During 2010, we resolved the dispute and paid $51,000 (AUS$51,000) in principal payments on this loan. During 2011 and 2012, we paid $256,000 (AUS$250,000) and $182,000 (AUS$175,000), respectively, in principal payments on this loan.
New Zealand
New Zealand Corporate Credit Facility
On February 8, 2012, we received an approved amendment from Westpac renewing our existing $36.9 million (NZ$45.0 million) New Zealand credit facility with a 3-year credit facility. The renewed facility calls for a decrease in the overall facility by $4.1 million ($5.0 million) to $32.8 million (NZ$40.0 million), an increase in the facility margin of 0.55% to 2.00%, and the line of credit charge increase from 0.30% to 0.40%. The facility is secured by substantially all of our New Zealand assets, but has not been guaranteed by any entity other than several of our New Zealand subsidiaries. The facility includes various affirmative and negative financial covenants designed to protect the bank’s security regarding capital expenditures and the repatriation of funds out of New Zealand. Also included in the restrictive covenants of the facility is the restriction of transferring funds from subsidiary to parent.
US
Bank of America Revolver
On October 31, 2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bank of America (the “BofA Revolver”) of $30.0 million with an interest rate of between 2.50% and 3.00% above LIBOR and an expiration date of October 31, 2017. Although the BofA Revolver does not require a fixed interest swap agreement, we will continue to use our existing fixed interest rate swap of $29.1 million until its term date of December 31, 2013, see Note 13 –
Derivative Instruments
. The BofA Revolver requires borrowing limit reductions of $3.0 million per year with a balloon payment of $18.0 million at the expiration date. The BofA Revolver contains other customary terms and conditions, including representations and warranties, affirmative and negative covenants, events of default and indemnity provisions. The most restrictive covenant of the facility requires that we must maintain a fixed charge coverage ratio at a certain level.
As part of the negotiations of the BofA Revolver, we entered into a master operating equipment lease financing agreement with Banc of America Leasing & Capital, LLC to finance the acquisition of up to $15.5 million in digital projection equipment for our U.S. cinema operations. See Note 19 -
Commitments and Contingencies
.
Bank of America Line of Credit
On October 31, 2012, Bank of America renewed and increased our existing $3.0 million line of credit to $5.0 million.
The LOC carries an interest rate equal to BBA LIBOR floating plus a 3.50% margin and an unused line fee of 0.03%.
The agreement is in effect till October 31, 2017 and is potentially renewable at that date. The undrawn balance of this LOC is $3.0 million at December 31, 2012.
Cinemas 1, 2, 3 Term Loan
On June 28, 2012, Sutton Hill Properties LLC (“SHP”), one of our consolidated subsidiaries, paid off its Eurohypo AG, New York Branch loan with a new $15.0 million term loan (the “Sovereign Bank Loan”) from Sovereign Bank, N.A. The Sovereign Bank Loan has a one-year term ending on June 27, 2013, with a one year extension option to June 26, 2014 subject to an extension fee equal to 1.00% of the ending principal balance and a compliance requirement with certain special covenants. As we currently intend to exercise this option, we have classified this loan as long-term. The terms of the loan require interest only payments at LIBOR plus a 5.00% margin to be calculated and paid monthly. This loan is secured by SHP’s interest in the Cinemas 1, 2, & 3 land and building. Covenants include maintaining a loan to value ratio of at least 50% of fair market value and an 11% debt yield (with a numerator of the cash available for debt service and a denominator of the outstanding principal balance of the loan). The Sovereign Bank Loan is further secured by a guaranty provided by Reading International, Inc. and by its noncontrolling interest member, Sutton Hill Capital, LLC.
Liberty Theaters Term Loan
On March 17, 2008, we entered into a $7.1 million loan agreement with a financial institution, secured by our Royal George Theatre in Chicago, Illinois and our Minetta Lane Theatre and Orpheum Theatre in New York. The loan has a 5-year term loan that accrues a 6.20% interest rate payable monthly in arrears. We incurred deferred financing costs of $527,000 related to our borrowings of this loan. The loan agreement requires only monthly principal and interest payments along with self-reported annual financial statements. As this loan is due to mature on April 1, 2013, the December 31, 2012 outstanding balance of this debt of $6.4 million is classified as current on our balance sheet. We intend to refinance the property’s debt.
US Nationwide Loan 1
On February 22, 2008, we acquired 15 motion picture theaters and theater-related assets from Pacific Theatres Exhibition Corp. and its affiliates (collectively, the “Sellers”) for $70.2 million a transaction referred to as the “Pacific Theaters Acquisition.” The Seller’s affiliate, Nationwide Theatres Corp (“Nationwide”), provided $21.0 million of acquisition financing evidenced by a five-year promissory note (the “Nationwide Note 1”) of Reading Consolidated Holdings, Inc., our wholly owned subsidiary (“RCHI”), maturing on February 21, 2013.
The Nationwide Note 1 bears interest (i) as to $4.5 million of principal at the annual rates of 7.50% for the first three years and 8.50% thereafter and (ii) as to $13.0 million of principal at the annual rates of 6.50% through July 31, 2009 and 8.50% thereafter. Accrued interest is due and payable on February 21, 2011 and thereafter on the last day of each calendar quarter, commencing on June 30, 2011. The entire principal amount is due and payable upon maturity, subject to our right to prepay at any time without premium or penalty and to the requirement that, under certain circumstances, we make mandatory prepayments equal to a portion of free cash flow generated by the acquired theaters. The loan is recourse only to RCHI and its assets, which include all of the Hawaii theaters and certain of the California theaters acquired from the Sellers and our Manville and Dallas Angelika Theaters.
The Nationwide Note 1 was subject to certain purchase price related adjustments. Through December 31, 2012, these adjustments have resulted in a net reduction in principal of $20.4 million comprised of a reduction in the amount of $6.3 million in 2008, a further reduction of $226,000 during the first quarter of 2009, an additional advance of $3.0 million in 2009 (such advance was used to pay down a portion of the GE Capital Term Loan discussed above), a $4.4 million reduction during the first quarter of 2010 in which Nationwide Theaters Corp. and Reading agreed to reduce the seller’s note, and finally a $12.5 million reduction in September 2010. As a result of these reductions, the principal balance of the notes at December 31, 2012 was $593,000.
Sutton Hill Capital Notes 1 & 2
As part of the negotiation of the Village East Lease (see Note 25 –
Related Parties and Transactions
), we paid off the Sutton Hill Capital (“SHC”) Note 1 of $5.0 million on June 30, 2010 and renegotiated the SHC Note 2 for $9.0 million. Under the new terms of the SHC Note 2, the loan has a variable annual rate equal to a Five-Year Constant Maturity United States Treasury Note rate plus a 5.75% margin, subject to a minimum rate of 8.25% and a maximum rate of 10% and the note matures on December 31, 2013. No interim principal payments are required and the balance of the note is payable upon maturity. No other covenants are required for this loan. This loan is unsecured.
Union Square Theatre Term Loan
On April 30, 2010, we refinanced the loan secured by our Union Square property with another lender. The new loan for $7.5 million has a five-year term with a fixed interest rate of 5.92% per annum and an amortization payment schedule of 20 years with a balloon payment of approximately $6.4 million at the end of the loan term.
US Nationwide Loan 2
In connection with the Pacific Theaters Acquisition, the Sellers also committed to loan to RDI up to $3.0 million in two draws of $1.5 million each, one of which was drawn on July 21, 2008 and the other of which may have been drawn on or before July 31, 2009. During 2010, as part of the $4.4 million note reduction of the US Nationwide Loan 1, we waived our right to draw on the second $1.5 million. The existing $1.5 million loan bore an interest rate of 8.50%, compounded annually. The loan and accrued interest were due and payable, in full, on February 21, 2011, subject to our right to prepay the loan without premium or penalty. Pursuant to the terms of this note, we paid off this loan of $1.5 million with its $359,000 of accrued interest on February 21, 2011.
Summary of Notes Payable
Our aggregate future principal loan payments are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2013
|
$
|
28,714
|
|
|
2014
|
|
86,357
|
|
|
2015
|
|
32,613
|
|
|
2016
|
|
3,000
|
|
|
2017
|
|
18,000
|
|
|
Thereafter
|
|
27,913
|
|
|
Total future principal loan payments
|
$
|
196,597
|
|
Since approximately $98.7 million of our total debt of $196.6 million at December 31, 2012 consisted of
debt denominated in Australian and New Zealand dollars, the U.S dollar amounts of these repayments will fluctuate in accordance with the relative values of these currencies.
Note 13 – Derivative Instruments
We are exposed to interest rate changes from our outstanding floating rate borrowings. We manage our fixed to floating rate debt mix to mitigate the impact of adverse changes in interest rates on earnings and cash flows and on the market value of our borrowings. From time to time, we may enter into interest rate hedging contracts, which effectively convert a portion of our variable rate debt to a fixed rate over the term of the interest rate swap.
In the case of our Australian borrowings, we are presently required to swap no less than 75% of our drawdowns under our Australian Corporate Credit Facility into fixed interest rate obligations. In conjunction with this NAB Credit Facility, we entered into a five-year interest swap agreement, which swaps 100% of our variable rate term loan based on BBSY for a 5.50% fixed rate loan which steps down commensurate with the payments of the loan balance. At the time of entering into this NAB swap, our existing BOSI swap was “in-the-money” by $160,000. In lieu of a cash payment for the in-the-money BOSI swap, we negotiated a slightly lower fixed swap rate by 0.05% for our new NAB fixed rate swap.
On October 31, 2012, we replaced our GE Capital Term Loan of $27.7 million with a new credit facility from Bank of America of $30.0 million (see Note 12 –
Notes Payable
). Although the new credit facility does not require a fixed interest swap agreement, we will continue to use our existing fixed interest rate swap of $29.1 million until its term date of December 31, 2013. In order for Bank of America to agree to taking on this swap agreement, we agreed to increase the swap contract rate by 0.10%.
As a result of these swap and loan agreements, we pay a total fixed interest rate of 8.15% (5.50% swap contract rate plus a 2.65% margin under the loan) for our NAB Loan and a total fixed interest rate of 5.84% (1.44% swap contract rate plus a 4.50% margin under the loan) for our BofA Loan instead of the obligatorily disclosed loan rates of 5.82% and 3.21%, respectively, as indicated in Note 12 –
Notes Payable
.
The following table sets forth the terms of our interest rate swap derivative instruments at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Instrument
|
|
Notional Amount
|
|
Pay Fixed Rate
|
|
Receive Variable Rate
|
|
Maturity Date
|
Interest rate swap
|
|
$29,062,000
|
|
1.440%
|
|
0.580%
|
|
December 31, 2013
|
Interest rate swap
|
|
$81,585,000
|
|
5.500%
|
|
4.550%
|
|
June 30, 2016
|
In accordance with FASB ASC 815-20 –
Derivatives and Hedging
, we marked our interest swap instruments to market on the consolidated balance sheet resulting in a $1.1 million increase to interest expense during 2012, a $5.0 million increase to interest expense during 2011, and a $284,000 decrease to interest expense during 2010. At December 31, 2012 and 2011, we recorded the fair market value of an interest rate swap of $5.9 million and $4.7 million, respectively, as an other long-term liabilities. In accordance with FASB ASC 815-20, we have not designated any of our current interest rate swap positions as financial reporting hedges.
Note 14 - Income Taxes
Income (loss) before income tax expense includes the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
United States
|
$
|
836
|
$
|
(1,391)
|
$
|
(1,566)
|
Foreign
|
|
1,446
|
|
(379)
|
|
2,354
|
Income (loss) before income tax expense and equity earnings of unconsolidated joint ventures and entities
|
$
|
2,282
|
$
|
(1,770)
|
$
|
788
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
:
|
|
|
|
|
|
|
United States
|
|
578
|
|
(604)
|
|
(309)
|
Foreign
|
|
(86)
|
|
(336)
|
|
(307)
|
Equity earnings and gain on sale of unconsolidated subsidiary
:
|
|
|
|
|
|
|
United States
|
|
27
|
|
33
|
|
86
|
Foreign
|
|
1,594
|
|
(1,585)
|
|
1,259
|
Gain on sale of discontinued operation:
|
|
|
|
|
|
|
United States
|
|
--
|
|
--
|
|
--
|
Foreign
|
|
(405)
|
|
1,888
|
|
97
|
Income (loss) before income tax expense
|
$
|
3,990
|
$
|
(2,374)
|
$
|
1,614
|
Significant components of the provision for income taxes are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Current income tax expense
|
|
|
|
|
|
|
Federal
|
$
|
964
|
$
|
1,332
|
$
|
7,730
|
State
|
|
584
|
|
531
|
|
5,239
|
Foreign
|
|
1,370
|
|
1,067
|
|
1,295
|
Total
|
|
2,918
|
|
2,930
|
|
14,264
|
Deferred income tax expense (benefit)
|
|
|
|
|
|
|
Federal
|
|
--
|
|
--
|
|
--
|
State
|
|
--
|
|
--
|
|
--
|
Foreign
|
|
1,986
|
|
(15,260)
|
|
--
|
Total
|
|
1,986
|
|
(15,260)
|
|
--
|
Total income tax expense (benefit)
|
$
|
4,904
|
$
|
(12,330)
|
$
|
14,264
|
Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by the relevant tax rate. The components of the deferred tax assets and liabilities are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Components of Deferred Tax Assets
|
|
2012
|
|
2011
|
Deferred Tax Assets:
|
|
|
|
|
Net operating loss carry forwards
|
$
|
31,040
|
$
|
35,455
|
Impairment reserves
|
|
4,493
|
|
1,764
|
Alternative minimum tax carry forwards
|
|
3,118
|
|
2,993
|
Installment sale of cinema property
|
|
3,022
|
|
2,929
|
Deferred revenue and expense
|
|
6,708
|
|
6,378
|
Acquired and option properties
|
|
(952)
|
|
2,924
|
Other
|
|
3,122
|
|
402
|
Total Deferred Tax Assets
|
|
50,551
|
|
52,845
|
Valuation allowance
|
|
(37,903)
|
|
(38,461)
|
Net deferred tax asset
|
$
|
12,648
|
$
|
14,384
|
In accordance with FASB ASC 740-10 –
Income Taxes
(“ASC 740-10”), we record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. ASC 740-10 presumes that a valuation allowance is required when there is substantial negative evidence about realization of deferred tax assets, such as a pattern of losses in recent years, coupled with facts that suggest such losses may continue. Because of such negative evidence available for the U.S., Puerto Rico, and New Zealand, as of December 31, 2012, we recorded a valuation allowance of $37.9 million. After consideration of a number of factors for the Reading Australia group, including its recent history of financial income, its expected future earnings, the increase in market value of its real estate assets, and having executed a credit facility of over $100.0 million to resolve potential liquidity issues, the Company determined as of July 1, 2011 that it is more likely than not that deferred tax assets in Reading Australia group will be realized. Accordingly, we reversed the full valuation allowance in Australia, resulting in a net deferred tax asset of $14.4 million as of December 31, 2011, with approximately $3.4 million classified as current and $11.0 million as non-current.
As of December 31, 2012, we had U.S. net operating loss carry forwards of $21.7 million, of which $14.4 million expire between 2025 and 2030, while $7.3 million expire between 2030 and 2035.
In addition to the above net operating loss carry forwards having expiration dates, we have the following carry forwards that have no expiration date at December 31, 2012:
·
|
approximately $3.1 million in U.S. alternative minimum tax credit carry forwards;
|
·
|
approximately $45.9 million in Australian loss carry forwards; and
|
·
|
approximately $16.3 million in New Zealand loss carry forwards.
|
We disposed of our Puerto Rico operations during 2005 and plan no further investment in Puerto Rico for the foreseeable future. We have approximately $14.1 million in Puerto Rico loss carry forwards expiring no later than 2018. No material future tax benefits from Puerto Rico loss carry forwards can be recognized by the Company unless it re-enters the Puerto Rico market.
We expect no other substantial limitations on the future use of U.S. or foreign loss carry forwards except as may occur for certain losses occurring in New Zealand related to the Landplan operations, which may only be used to offset income and gains from those particular activities, and cannot be shared with their respective consolidated group.
U.S. income taxes have not been recognized on the temporary differences between book value and tax basis of investment in foreign subsidiaries. These differences become taxable upon a sale of the subsidiary or upon distribution of assets from the subsidiary to U.S. shareholders. We expect neither of these events will occur in the foreseeable future for any of our foreign subsidiaries.
The provision for income taxes is different from amounts computed by applying U.S. statutory rates to consolidated losses before taxes. The significant reason for these differences follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Expected tax provision (benefit)
|
$
|
1,397
|
$
|
(831)
|
$
|
554
|
Increase (decrease) in tax expense resulting from:
|
|
|
|
|
|
|
Change in valuation allowance
|
|
(558)
|
|
(15,260)
|
|
(5,595)
|
Expired foreign loss carry forward
|
|
--
|
|
1,100
|
|
1,816
|
Foreign tax provision
|
|
3,356
|
|
1,067
|
|
1,291
|
Tax effect of foreign tax rates on current income
|
|
(126)
|
|
24
|
|
(240)
|
State and local tax provision
|
|
408
|
|
361
|
|
440
|
Tax/Audit Litigation Settlement
|
|
1,140
|
|
1,375
|
|
12,528
|
Effect of tax rate change
|
|
--
|
|
--
|
|
3,422
|
Other items
|
|
(713)
|
|
(166)
|
|
48
|
Actual tax provision (benefit)
|
$
|
4,904
|
$
|
(12,330)
|
$
|
14,264
|
Pursuant to ASC 740-10, a provision should be made for the tax effect of earnings of foreign subsidiaries that are not permanently invested outside the United States. Our intent is that earnings of our foreign subsidiaries are not permanently invested outside the United States. Current earnings were available for distribution in the Reading Australia consolidated group of subsidiaries as of December 31, 2012. There is no withholding tax on dividends paid by an Australian company to its 80% or more U.S. public company shareholder, thus we have not provided foreign withholding taxes for these current retained earnings. We believe the U.S. tax impact of a dividend from our Australian subsidiary, net of loss carry forward and potential foreign tax credits, would not have a material effect on the tax provision as of December 31 2012.
We have accrued $24.1 million in income tax liabilities as of December 31, 2012, of which $15.2 million has been classified as current taxes payable and $8.9 million have been classified as non-current tax liabilities. As part of current taxes payable, we have accrued $8.0 million in connection with federal and state liabilities arising from the “Tax/Audit Litigation” matter which has now been settled (see Note 19 –
Commitments and Contingencies
). As part of noncurrent tax liabilities, we have accrued an additional $6.5 million related to the “Tax Audit/Litigation” matter. Amounts assessed by the IRS and expected to be assessed by state income tax agencies in connection with the “Tax Audit/Litigation” matter are no longer recorded under the cumulative probability approach prescribed by FASB ASC 740-10-25 but are recorded as a fixed and determinable liability. We believe the $24.1 million in tax liabilities represents an adequate provision for our income tax exposures.
The following table is a summary of the activity related to unrecognized tax benefits, excluding interest and penalties, for the years ending December 31, 2012, December 31, 2011, and December 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Unrecognized tax benefits – gross beginning balance
|
$
|
1,974
|
$
|
8,058
|
$
|
11,412
|
Gross increases – prior period tax provisions
|
|
197
|
|
--
|
|
--
|
Gross increases – current period tax positions
|
|
--
|
|
151
|
|
405
|
Settlements
|
|
--
|
|
(6,235)
|
|
(3,189)
|
Statute of limitations lapse
|
|
--
|
|
--
|
|
(570)
|
Unrecognized tax benefits – gross ending balance
|
$
|
2,171
|
$
|
1,974
|
$
|
8,058
|
We adopted FASB ASC 740-10-25 –
Income Taxes
-
Uncertain Tax Positions
(“ASC 740-10-25”) on January 1, 2007. In connection, we record interest and penalties related to income tax matters as part of income tax expense.
We had approximately $10.8 million and $11.4 million of gross tax benefits as of the adoption date and December 31, 2007, respectively, plus $1.7 million and $2.3 million of tax interest unrecognized on the financial
statements as of each date, respectively. The gross tax benefits mostly reflect operating loss carry forwards and the IRS Tax Audit/Litigation case described below.
We recorded a reduction to our gross unrecognized tax benefits of approximately $3.4 million and an increase to tax interest of approximately $8.8 million during the period January 1, 2010 to December 31, 2010, and the total balance at December 31, 2010 was approximately $20.6 million (of which approximately $12.6 million represents IRS interest). Having settled the Tax Audit/Litigation matter described in Note 19 –
Commitments and Contingencies
, we further recorded a net reduction to our gross unrecognized tax benefits of approximately $6.1 million and a reduction to tax interest of approximately $10.4 million during the period January 1, 2011 to December 31, 2011, resulting in a total balance at December 31, 2011 of approximately $4.1 million, consisting of $1.9 million tax and $2.2 million interest. Of the $4.1 million gross unrecognized tax benefit at December 31, 2011, approximately $3.0 million would impact the effective tax rate if recognized. During the period January 1, 2012 to December 31, 2012 we recorded an increase of $0.2 million to our gross unrecognized tax benefits and an increase to tax interest of approximately $1.1 million, resulting in a total balance of $5.3 million consisting of $2.1 million in tax and $3.2 million in interest. Of the $5.3 million gross unrecognized tax benefit at December 31, 2012, approximately $4.3 million would impact the effective rate if recognized.
It is difficult to predict the timing and resolution of uncertain tax positions. Based upon the Company’s assessment of many factors, including past experience and judgments about future events, it is probable that within the next 12 months the reserve for uncertain tax positions will increase within a range of $0.5 million to $1.5 million. The reasons for such change include but are not limited to tax positions expected to be taken during 2013, revaluation of current uncertain tax positions, and expiring statutes of limitation.
Our company and subsidiaries are subject to U.S. federal income tax, income tax in various U.S. states, and income tax in Australia, New Zealand, and Puerto Rico.
Generally, changes to our federal and most state income tax returns for the calendar year 2007 and earlier are barred by statutes of limitations. Certain domestic subsidiaries filed federal and state tax returns for periods before these entities became consolidated with us. These subsidiaries were examined by IRS for the years 1996 to 1999 and significant tax deficiencies were assessed for those years. Those deficiencies have been settled, as discussed in “Tax Audit/Litigation,” Note 19 –
Commitments and Contingencies
. Our income tax returns for Australia filed since inception in 1995 are generally open for examination. The income tax returns filed in New Zealand and Puerto Rico for calendar year 2006 and afterward remain open for examination as of December 31, 2012.
Note 15 – Other Liabilities
Other liabilities are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
Current liabilities
|
|
|
|
|
Lease liability
|
$
|
5,855
|
$
|
--
|
Security deposit payable
|
|
174
|
|
137
|
Other
|
|
3
|
|
--
|
Other current liabilities
|
$
|
6,032
|
$
|
137
|
Other liabilities
|
|
|
|
|
Foreign withholding taxes
|
$
|
6,480
|
$
|
6,212
|
Straight-line rent liability
|
|
8,893
|
|
8,067
|
Lease liability
|
|
--
|
|
5,746
|
Environmental reserve
|
|
1,656
|
|
1,656
|
Accrued pension
|
|
6,976
|
|
4,289
|
Interest rate swap
|
|
5,855
|
|
4,722
|
Acquired leases
|
|
2,078
|
|
2,742
|
Other payable
|
|
1,191
|
|
1,243
|
Other
|
|
630
|
|
962
|
Other liabilities
|
$
|
33,759
|
$
|
35,639
|
Village East Purchase Option
On June 29, 2010, we agreed to extend our existing lease from SHC of the Village East Cinema in New York City by 10 years, with a new termination date of June 30, 2020. The Village East lease includes a sub-lease of the ground underlying the cinema that is subject to a longer-term ground lease between SHC and an unrelated third party that expires in June 1, 2031 (the “cinema ground lease”). The extended lease provides for a call option pursuant to which Reading may purchase the cinema ground lease for $5.9 million at the end of the lease term. Additionally, the lease has a put option pursuant to which SHC may require Reading to purchase all or a portion of SHC’s interest in the existing cinema lease and the cinema ground lease at any time between July 1, 2013 and December 4, 2019. SHC’s put option may be exercised on one or more occasions in increments of not less than $100,000 each. Because our Chairman, Chief Executive Officer, and controlling shareholder, Mr. James J. Cotter, is also the managing member of SHC, RDI and SHC are considered entities under common control. As a result, we recorded the Village East Cinema building as a property asset of $4.7 million on our balance sheet based on the cost carry-over basis from an entity under common control with a corresponding lease liability of $5.9 million presented under other liabilities which accretes up to the $5.9 million liability till July 1, 2013 (see Note 25 –
Related Parties and Transactions
). As the option can be exercised starting on July 1, 2013, we have classified the $5.9 million lease liability as a current liability.
Note 16 – Fair Value of Financial Instruments
ASC 820-10 applies to existing accounting pronouncements in which fair value measurements are already required and defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.
ASC 820-10 (see Note 2 –
Summary of Significant Accounting Policies
) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
We use appropriate valuation techniques based on the available inputs to measure the fair values of our assets and liabilities. When available, we measure fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.
We used the following methods and assumptions to estimate the fair values of the assets and liabilities in the table above.
Level 1 Fair Value Measurements
– are based on market quotes of our marketable securities.
Level 2 Fair Value Measurements
–
Interest Rate Swaps
– The fair value of interest rate swaps are estimated using internal discounted cash flow calculations based upon forward interest rate curves, which are corroborated by market data, and quotes obtained from counterparties to the agreements.
Level 3 Fair Value Measurements
–
Impaired Property
– For assets measured on a non-recurring basis, such as real estate assets that are required to be recorded at fair value as a result of an impairment, our estimates of fair value are based on management’s best estimate derived from evaluating market sales data for comparable properties developed by a third party appraiser and arriving at management’s estimate of fair value based on such comparable data primarily based on properties with similar characteristics. For the years ended December 31, 2012, 2011, and 2010, the fair value of our impaired properties was estimated to be $4.1 million, $1.9 million, and $1.8 million, respectively, which we used to record our impairment expense and was based on level 3 inputs in developing management’s estimate of fair value. For the year ended December 31, 2011, the fair value of our Rialto Cinemas investment was $1.6 million (NZ$2.0 million) resulting in an impairment charge of $2.9 million (NZ$3.8 million).
As of December 31, 2012, we held certain items that are required to be measured at fair value on a recurring basis. These included available for sale securities and interest rate derivative contracts. Derivative instruments are related to our economic hedge of interest rates. Our available-for-sale securities primarily consist of investments associated with the ownership of marketable securities in Australia.
The fair values of the interest rate swap agreements are determined using the market standard methodology of discounting the future expected cash receipts or payments that would occur if variable interest rate fell above or below the strike rate of the interest rate swap agreement. The variable interest rates used in the calculation of projected receipts or payments on the interest rate swap and cap agreements are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of ASC 820-10, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of December 31, 2012, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We have consistently applied these valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivative contracts we hold.
The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 at December 31, 2012 and 2011, respectively (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value
|
|
Fair Value
|
Financial Instrument
|
Level
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Investment in marketable securities
|
1
|
$
|
55
|
$
|
2,874
|
$
|
55
|
$
|
2,874
|
Interest rate swaps liability
|
2
|
$
|
5,855
|
$
|
4,722
|
$
|
5,855
|
$
|
4,722
|
Financial Instruments Disclosed at Fair Value
The following table sets forth the carrying value and the fair value of our financial assets and liabilities at December 31, 2012 and 2011 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value
|
Fair Value
|
Financial Instrument
|
Level
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Cash
|
1
|
$
|
38,531
|
$
|
31,597
|
$
|
38,531
|
$
|
31,597
|
Time deposits
|
1
|
$
|
8,000
|
$
|
--
|
$
|
8,000
|
$
|
--
|
Accounts receivable
|
1
|
$
|
8,514
|
$
|
6,973
|
$
|
8,514
|
$
|
6,973
|
Other assets - notes receivable
|
1
|
$
|
2,000
|
$
|
851
|
$
|
2,000
|
$
|
851
|
Restricted cash
|
1
|
$
|
2,465
|
$
|
2,379
|
$
|
2,465
|
$
|
2,379
|
Accounts and film rent payable
|
1
|
$
|
25,566
|
$
|
23,067
|
$
|
25,566
|
$
|
23,067
|
Notes payable
|
3
|
$
|
159,684
|
$
|
172,701
|
$
|
154,795
|
$
|
166,152
|
Notes payable to related party
|
N/A
|
$
|
9,000
|
$
|
9,000
|
$
|
N/A
|
$
|
N/A
|
Subordinated debt
|
3
|
$
|
27,913
|
$
|
27,913
|
$
|
12,268
|
$
|
20,544
|
For purposes of this fair value disclosure, we based our fair value estimate for notes payable and subordinated debt on our internal valuation whereby we apply the discounted cash flow method to our expected cash flow payments due under our existing debt agreements based on a representative sample of our lenders’ market interest rate quotes as of December 31, 2012 and 2012, respectively, for debt with similar risk characteristics and maturities.
Note 17 – Lease Agreements
Most of our cinemas conduct their operations in leased facilities. Thirteen of our eighteen operating multiplexes in Australia, four of our eight cinemas in New Zealand, and all but one of our cinemas in the United States are in leased facilities. These cinema leases have remaining terms inclusive of options of 1 to 38 years. Certain of our cinema leases provide for contingent rentals based upon a specified percentage of theater revenue with a guaranteed minimum. Substantially all of our leases require the payment of property taxes, insurance, and other costs applicable to the property. We also lease office space and equipment under non-cancelable operating leases. All of our leases are accounted for as operating leases and accordingly, we have no leases of facilities that require capitalization.
We determine the annual base rent expense of our cinemas by amortizing total minimum lease obligations on a straight-line basis over the lease terms. Base rent expense and contingent rental expense under the operating leases totaled approximately $32.6 million and $1.7 million for 2012, respectively; $31.2 million and $1.6 million for 2011, respectively; and $30.9 million and $1.1 million for 2010, respectively. Future minimum lease payments by year and, in the aggregate, under non-cancelable operating leases consisted of the following at December 31, 2012 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Ground
|
|
Minimum Premises
|
|
Equipment
|
|
Total Minimum
|
|
|
Lease Payments
|
|
Lease Payments
|
|
Lease
|
|
Lease Payments
|
2013
|
$
|
3,218
|
$
|
28,477
|
$
|
2,693
|
$
|
34,388
|
2014
|
|
2,130
|
|
25,720
|
|
2,693
|
|
30,543
|
2015
|
|
1,094
|
|
22,637
|
|
2,693
|
|
26,424
|
2016
|
|
1,128
|
|
18,753
|
|
2,693
|
|
22,574
|
2017
|
|
1,223
|
|
15,772
|
|
2,693
|
|
19,688
|
Thereafter
|
|
15,248
|
|
61,023
|
|
--
|
|
76,271
|
Total minimum lease payments
|
$
|
24,041
|
$
|
172,382
|
$
|
13,465
|
$
|
209,888
|
Since approximately $90.2 million of our total minimum lease payments of $209.9 million as of December 31, 2012 consisted of lease obligations denominated in Australian and New Zealand dollars, the U.S dollar amounts of these obligations will fluctuate in accordance with the relative values of these currencies. See Note 25 –
Related Parties and Transactions
for the amount of leases associated with any related party leases.
Digital Projection Equipment Lease
Effective December 1, 2012, we entered into a 5-year digital projection equipment lease obligation with Banc of America enabling us to convert substantially all of our domestic cinemas to digital projection. The equipment lease agreement requires that we make lease payments of $218,000 per month for the next 60 months after which we can either purchase the equipment at a market price or renew the lease for an undertermined length of time. This lease qualifies as an operating lease and is recorded accordingly.
Note 18 – Pension Liabilities
Supplemental Executive Retirement Plan
In March 1, 2007, the Board of Directors of Reading International, Inc. (“Reading”) approved a Supplemental Executive Retirement Plan (“SERP”) pursuant to which Reading has agreed to provide James J. Cotter, its Chief Executive Officer and Chairman of the Board of Directors, supplemental retirement benefits effective March 1, 2007. Under the SERP, Mr. Cotter will receive a monthly payment of the greater of (i) 40% of the average monthly earnings over the highest consecutive 36-month period of earnings prior to Mr. Cotter’s separation from service with Reading or (ii) $25,000 per month for the remainder of his life, with a guarantee of 180 monthly payments following his separation from service with Reading or following his death. The beneficiaries under the SERP may be designated by Mr. Cotter or by his beneficiary following his or his beneficiary’s death. The benefits under the SERP are fully vested as of March 1, 2007.
The SERP initially will be unfunded, but Reading may choose to establish one or more grantor trusts from which to pay the SERP benefits. As such, the SERP benefits are unsecured, general obligations of Reading. The SERP is administered by the Compensation Committee of the Board of Directors of Reading. In accordance with FASB ASC 715-30-05 –
Defined Benefit Pension Plans
(“ASC 715-30-05”), the initial pension benefit obligation of $2.7 million was included in our other liabilities with a corresponding amount of unrecognized prior service cost included in accumulated other comprehensive income on March 1, 2007. The initial benefit obligation was based on a discount rate of 5.75% and a compensation increase rate of 3.5%. The $2.7 million is being amortized as a prior service cost over the estimated service period of 10 years combined with an annual interest cost. For the years ended December 31, 2012, 2011, and 2010, we recognized $149,000, $195,000, and $200,000, respectively, of interest cost and $304,000 of amortized prior service cost per year. For the years ended December 31, 2012 and 2011, we recognized $0 and $24,000 of amortized net gains. The balance of the other liability for this pension plan was $5.9 million and $3.5 million at December 31, 2012 and 2011, respectively, and the accumulated unrecognized prior service costs included in other comprehensive income balance was $3.2 and $1.2 million at December 31, 2012 and 2011, respectively. The December 31, 2012 and 2011 values of the SERP are based on a discount rate of 3.40% and 4.25%, respectively and an annual compensation growth rate of 3.50% per year.
The change in the SERP pension benefit obligation and the funded status for the year ending December 31, 2012 and 2011 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
For the year ending
|
Change in Benefit Obligation
|
|
December 31, 2012
|
Benefit obligation at January 1, 2012
|
$
|
3,511
|
Interest cost
|
|
149
|
Actuarial loss
|
|
2,284
|
Benefit obligation at December 31, 2012
|
|
5,944
|
Funded status at December 31, 2012
|
$
|
(5,944)
|
|
|
|
|
|
For the year ending
|
Change in Benefit Obligation
|
|
December 31, 2011
|
Benefit obligation at January 1, 2011
|
$
|
3,820
|
Interest cost
|
|
195
|
Actuarial gain
|
|
(504)
|
Benefit obligation at December 31, 2011
|
|
3,511
|
Funded status at December 31, 2011
|
$
|
(3,511)
|
Amount recognized in balance sheet consists of (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012
|
|
At December 31, 2011
|
Current liabilities
|
$
|
14
|
$
|
10
|
Noncurrent liabilities
|
|
5,930
|
|
3,501
|
|
|
|
|
|
Items not yet recognized as a component of net periodic pension cost consist of (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012
|
|
At December 31, 2011
|
Unamortized actuarial (gain) loss
|
$
|
2,269
|
$
|
(14)
|
Prior service costs
|
|
931
|
|
1,234
|
Accumulated other comprehensive loss
|
|
3,200
|
|
1,220
|
The components of the net periodic benefit cost and other amounts recognized in other comprehensive income are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
For the year ending December 31, 2012
|
|
For the year ending December 31, 2011
|
Interest cost
|
$
|
149
|
$
|
195
|
Amortization of prior service costs
|
|
304
|
|
304
|
Amortization of net gain
|
|
--
|
|
24
|
Net periodic benefit cost
|
$
|
453
|
$
|
523
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income
|
|
|
|
|
Net (gain) loss
|
$
|
2,284
|
$
|
(504)
|
Amortization of prior service cost
|
|
(304)
|
|
(304)
|
Amortization of net gain
|
|
--
|
|
(24)
|
Total recognized in other comprehensive income
|
$
|
1,980
|
$
|
(832)
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
$
|
2,433
|
$
|
(309)
|
The estimated net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year will be $356,000 and $304,000, respectively.
The following weighted average assumptions were used to determine the plan benefit obligations at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Discount rate
|
|
3.40%
|
|
4.25%
|
Rate of compensation increase
|
|
3.50%
|
|
3.50%
|
The following weighted-average assumptions were used to determine net periodic benefit cost for the year ended December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Discount rate
|
|
4.25%
|
|
5.10%
|
Expected long-term return on plan assets
|
|
0.00%
|
|
0.00%
|
Rate of compensation increase
|
|
3.50%
|
|
3.50%
|
Other Pension Liabilities
In addition to the aforementioned SERP, we have defined contribution pension plans for selected current and former executives of our corporation resulting in a pension liability of $1.0 million and $778,000 at December 31, 2012 and 2011, respectively. These pensions accrued $204,000 and $101,000 of pension expense for the years ended December 31, 2012 and 2011, respectively.
The benefit payments for all of our pensions, which reflect expected future service, as appropriate, are expected to be paid over the following periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Payments
|
2013
|
|
|
$
|
13
|
2014
|
|
|
|
27
|
2015
|
|
|
|
44
|
2016
|
|
|
|
61
|
2017
|
|
|
|
481
|
Thereafter
|
|
|
|
6,350
|
Total pension payments
|
|
|
$
|
6,976
|
Note 19 - Commitments and Contingencies
Unconsolidated Joint Venture Loans
The following section describes any loans associated with our investments in unconsolidated joint ventures. As these investments are unconsolidated, any associated bank loans are not reflected in our Consolidated Balance Sheet at December 31, 2012. Each loan is without recourse to any assets other than our interests in the individual joint venture.
Rialto Distribution.
We are the 33.3% co-owners of the assets of Rialto Distribution. At December 31, 2012 and 2011, Rialto Distribution had a bank line of credit of $1.7 million (NZ$2.0 million) and $1.6 million (NZ$2.0 million), respectively, and had an outstanding balance of $703,000 (NZ$850,000) and $663,000 (NZ$850,000), respectively. This loan is guaranteed by one of our subsidiaries to the extent of our ownership percentage.
Tax Audit/Litigation
The Internal Revenue Service (the “IRS”) has examined the tax return of Reading Entertainment Inc. (“RDGE”) for its tax years ended December 31, 1996 through December 31, 1999 and the tax return of Craig Corporation (“CRG”) for its tax year ended June 30, 1997. These companies are both now wholly owned subsidiaries of the Company, but for the time periods under audit, were not consolidated with the Company for tax purposes.
CRG and the IRS agreed to compromise the claims made by the IRS against CRG and the Tax Court’s order was entered on January 6, 2011. In the settlement, the IRS conceded 70% of its claimed adjustment to income. Instead of a claim for unpaid taxes of $20.9 million plus interest, the effect of settlement on the Reading consolidated group was to require a total federal income tax obligation of $5.4 million, reduced by a federal tax refund of $800,000 and increased by interest of $9.3 million, for a net federal tax liability of $13.9 million as of January 6, 2011. On October 26, 2011, CRG reached an agreement with the IRS for an installment plan to pay off this federal tax liability, including additional interest accruals at the prescribed IRS floating rate. The agreement requires monthly payments of $290,000 over a period of approximately five years. As of December 31, 2012 and 2011, after the payments made during 2012 and 2011, respectively, the remaining federal tax obligation was $10.0 million and $13.5 million, respectively, in tax and interest. Of the $10.0 million owed under the installment agreement as of December 31, 2012, $3.5 million was recorded as current taxes payable, with the remaining balance being recorded as non-current tax liability. Of the $13.5 million owed under the installment agreement as of December 31, 2011, $3.5 million was recorded as current taxes payable, with the remaining balance being recorded as non-current tax liability.
The impact of the settlement upon the state taxes of the Reading consolidated group, if the adjustment to income agreed with the IRS were reflected on state returns, would be an obligation of approximately $1.4 million in tax plus interest and potential penalty. CRG’s 1997 tax year remains open with respect to CRG’s potential tax liability to the State of California. As of December 31, 2012, no deficiency has been asserted by the State of California, and we have made no final decision as to the course of action to be followed when a deficiency is asserted.
Environmental and Asbestos Claims
Certain of our subsidiaries were historically involved in railroad operations, coal mining, and manufacturing. Also, certain of these subsidiaries appear in the chain of title of properties that may suffer from pollution. Accordingly, certain of these subsidiaries have, from time to time, been named in and may in the future be named in various actions brought under applicable environmental laws. Also, we are in the real estate development business and may encounter from time to time unanticipated environmental conditions at properties that we have acquired for development. These environmental conditions can increase the cost of such projects, and adversely affect the value and potential for profit of such projects. We do not currently believe that our exposure under applicable environmental laws is material in amount.
From time to time, we have claims brought against us relating to the exposure of former employees of our railroad operations to asbestos and coal dust. These are generally covered by an insurance settlement reached in September 1990 with our insurance carriers. However, this insurance settlement does not cover litigation by people who were not our employees and who may claim second hand exposure to asbestos, coal dust and/or other chemicals or elements now recognized as potentially causing cancer in humans. Our known exposure to these types of claims, asserted or probable of being asserted, is not material.
In connection with the development of our 50.6 acre Burwood site, it will be necessary to address certain environmental issues. That property was at one time used as a brickworks and we have discovered petroleum and asbestos at the site. During 2007, we developed a plan for the remediation of these materials, in some cases through removal and in other cases through encapsulation. As of December 31, 2012, we estimate that the total site preparation costs associated with the removal of this contaminated soil will be $17.7 million (AUS$17.1 million) and as of that date we had incurred a total of $8.6 million (AUS$8.3 million) of these costs. We do not believe that this has added materially to the overall development cost of the site, as it is anticipated that all of the work will be done in connection with the excavation and other development activity already contemplated for the property.
Note 20 – Noncontrolling interests
As of
December 31, 2012, the noncontrolling interests in our consolidated subsidiaries are comprised of the following:
·
|
50% of membership interest in Angelika Film Center LLC (“AFC LLC”) owned by a subsidiary of iDNA
|
·
|
25% noncontrolling interest in Australian Country Cinemas by 21st Century Pty, Ltd
|
·
|
50% noncontrolling membership interest in Shadow View Land and Farming, LLC owned by Mr. James J. Cotter, Sr.; and
|
·
|
25% noncontrolling interest in the Sutton Hill Properties, LLC owned by Sutton Hill Capital, LLC
|
The components of noncontrolling interest are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
AFC LLC
|
$
|
1,737
|
$
|
1,125
|
Australian Country Cinemas
|
|
601
|
|
360
|
Elsternwick unincorporated joint venture
|
|
--
|
|
--
|
Shadow View Land and Farming LLC
|
|
1,912
|
|
--
|
Sutton Hill Properties
|
|
(152)
|
|
(250)
|
Noncontrolling interests in consolidated subsidiaries
|
$
|
4,098
|
$
|
1,235
|
The components of income attributable to noncontrolling interests are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
AFC LLC
|
$
|
612
|
$
|
909
|
$
|
546
|
Australian Country Cinemas
|
|
86
|
|
311
|
|
249
|
Elsternwick unincorporated joint venture
|
|
--
|
|
25
|
|
59
|
Shadow View Land and Farming LLC
|
|
(843)
|
|
--
|
|
--
|
Sutton Hill Properties
|
|
(347)
|
|
(305)
|
|
(238)
|
Net income attributable to noncontrolling interest
|
$
|
(492)
|
$
|
940
|
$
|
616
|
Shadow View Land and Farming LLC
During the 2012, Mr. James J. Cotter, our Chairman, Chief Executive Officer and controlling shareholder, contributed $2.5 million of cash and $255,000 of his 2011 bonus as his 50% share of the purchase price of a land parcel in Coachella, California and to cover his 50% share of certain costs associated with that acquisition. This land is held in Shadow View Land and Farming, LLC, in which Mr. Cotter owns a 50% interest. We are the managing member of Shadow View Land and Farming, LLC. However, as Mr. Cotter is considered to be our controlling shareholder, pursuant to FASB ASC 810-10-05, we have consolidated Mr. Cotter’s interest in the property and its expenses with that of our interest and shown his interest as a noncontrolling interest. Note 8 –
Acquisitions, Disposals, and Assets Held for Sale
.
Elsternwick Sale
On April 14, 2011, we sold our 66.7% share of the 5-screen Elsternwick Classic cinema located in Melbourne, Australia to our joint venture partner for $1.9 million (AUS$1.8 million) and recognized a gain on sale of a discontinued operation of $1.7 million (AUS$1.6 million).
Note 21 - Common Stock
Our common stock trades on the NASDAQ under the symbols RDI and RDIB which are our Class A (non-voting) and Class B (voting) stock, respectively. Our Class A (non-voting) has preference over our Class B (voting) shares upon liquidation. No dividends have ever been issued for either share class.
2012 Common Stock Activity
During 2012, we issued 155,925 of Class A Nonvoting shares to an executive employee associated with his prior years’ stock grant, and, during 2012, we issued 9,680 as a one-time stock grant of Class A Nonvoting shares to our employees valued at $44,000 which we accounted for as compensation expense.
95,000 options were exercised during 2012 having a realized value of $136,000 for which we received $308,000 of cash. Additionally, 41,000 options were exercised during 2012 having a realized value of $103,000 for which we did not receive any cash but the employee elected to receive the net incremental number of in-the-money shares of 15,822 based on an exercise price of $4.01 and a market price of $6.53.
2011 Common Stock Activity
During 2011, we issued 174,825 of Class A Nonvoting shares to certain executive employee associated with his prior years’ stock grants.
During 2011, we purchased 172,300 of Class A Nonvoting shares on the open market for $747,000.
2010 Common Stock Activity
During 2010, we issued 148,616 shares of Class A Stock (non-voting) to certain executive employees associated with their prior years’ stock bonuses. Additionally, we canceled 4,348,780 shares of Class A Stock (non-voting) held as treasury by one of our subsidiaries due to an issuance error made in 2002 associated with the consolidation of Reading Entertainment Inc. and Craig Corporation, Inc. into Reading International, Inc.
For the stock options exercised during 2010, we issued for cash to employees or directors of the corporation under our employee stock option plan 90,000 shares of Class A Stock at an exercise price of $2.76 per share.
Due to a perceived low price of our common shares, during the first quarter of 2010, we purchased 62,375 shares for a total cost of $251,000. Also, as a result of our revised Village East Cinema building lease, we recorded a deemed equity distribution of $877,000 (see Note 25 –
Related Parties and Transactions
).
Note 22 – Business Segments and Geographic Area Information
The table below sets forth certain information concerning our cinema operations and our real estate operations (which includes information relating to both our real estate development, retail rental and live theater rental activities) for the three years ended December 31, 2012 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
Cinema Exhibition
|
Real Estate
|
Intersegment Eliminations
|
Total
|
Revenue
|
$
|
234,703
|
$
|
27,256
|
$
|
(7,529)
|
$
|
254,430
|
Operating expense
|
|
198,040
|
|
11,163
|
|
(7,529)
|
|
201,674
|
Depreciation and amortization
|
|
11,154
|
|
4,441
|
|
--
|
|
15,595
|
General and administrative expense
|
|
2,598
|
|
718
|
|
--
|
|
3,316
|
Impairment expense
|
|
--
|
|
1,463
|
|
--
|
|
1,463
|
Segment operating income
|
$
|
22,911
|
$
|
9,471
|
$
|
--
|
$
|
32,382
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
Cinema Exhibition
|
Real Estate
|
Intersegment Eliminations
|
Total
|
Revenue
|
$
|
225,849
|
$
|
26,562
|
$
|
(7,432)
|
$
|
244,979
|
Operating expense
|
|
189,647
|
|
10,190
|
|
(7,432)
|
|
192,405
|
Depreciation and amortization
|
|
11,842
|
|
4,444
|
|
--
|
|
16,286
|
General and administrative expense
|
|
2,740
|
|
646
|
|
--
|
|
3,386
|
Impairment expense
|
|
--
|
|
369
|
|
--
|
|
369
|
Segment operating income
|
$
|
21,620
|
$
|
10,913
|
$
|
--
|
$
|
32,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
Cinema Exhibition
|
Real Estate
|
Intersegment Eliminations
|
Total
|
Revenue
|
$
|
211,073
|
$
|
24,715
|
$
|
(6,466)
|
$
|
229,322
|
Operating expense
|
|
178,261
|
|
9,049
|
|
(6,466)
|
|
180,844
|
Depreciation and amortization
|
|
10,559
|
|
4,289
|
|
--
|
|
14,848
|
General and administrative expense
|
|
2,880
|
|
1,043
|
|
--
|
|
3,923
|
Impairment expense
|
|
--
|
|
2,239
|
|
--
|
|
2,239
|
Segment operating income
|
$
|
19,373
|
$
|
8,095
|
$
|
--
|
$
|
27,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net income attributable
|
|
|
|
|
|
|
|
|
to Reading International, Inc. shareholders:
|
|
|
|
2012
|
|
2011
|
|
2010
|
Total segment operating income
|
|
|
$
|
32,382
|
$
|
32,533
|
$
|
27,468
|
Non-segment:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
454
|
|
309
|
|
715
|
General and administrative expense
|
|
|
|
12,801
|
|
14,046
|
|
13,684
|
Operating income
|
|
|
|
19,127
|
|
18,178
|
|
13,069
|
Interest expense, net
|
|
|
|
(16,426)
|
|
(21,038)
|
|
(12,286)
|
Other income (loss)
|
|
|
|
(563)
|
|
1,157
|
|
(347)
|
Gain (loss) on sale of assets
|
|
|
|
144
|
|
(67)
|
|
352
|
Income tax benefit (expense)
|
|
|
|
(4,904)
|
|
12,330
|
|
(14,264)
|
Equity earnings (loss) of unconsolidated joint ventures and entities
|
|
|
|
1,621
|
|
(1,552)
|
|
1,345
|
Income (loss) from discontinued operations
|
|
|
|
(85)
|
|
232
|
|
97
|
Gain (loss) on sale of discontinued operation
|
|
|
|
(320)
|
|
1,656
|
|
--
|
Net income (loss)
|
|
|
$
|
(1,406)
|
$
|
10,896
|
$
|
(12,034)
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
492
|
|
(940)
|
|
(616)
|
Net income (loss) attributable to Reading International, Inc. common shareholders
|
|
|
$
|
(914)
|
$
|
9,956
|
$
|
(12,650)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Summary of assets:
|
|
2012
|
|
2011
|
|
2010
|
Segment assets
|
$
|
408,667
|
$
|
414,608
|
$
|
406,569
|
Corporate assets
|
|
19,921
|
|
16,156
|
|
23,780
|
Total Assets
|
$
|
428,588
|
$
|
430,764
|
$
|
430,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Summary of capital expenditures:
|
|
2012
|
|
2011
|
|
2010
|
Segment capital expenditures
|
$
|
13,390
|
$
|
8,419
|
$
|
18,942
|
Corporate capital expenditures
|
|
333
|
|
957
|
|
429
|
Total capital expenditures
|
$
|
13,723
|
$
|
9,376
|
$
|
19,371
|
The cinema results shown above include revenue and operating expense directly linked to our cinema assets. The real estate results include rental income from our properties and live theater venues and operating expense directly linked to our property assets.
The following table sets forth the book value of our operating property by geographical area (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
Australia
|
$
|
106,020
|
$
|
106,263
|
New Zealand
|
|
35,456
|
|
33,322
|
United States
|
|
61,302
|
|
64,195
|
Total operating property
|
$
|
202,778
|
$
|
203,780
|
The following table sets forth our revenue by geographical area (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Australia
|
$
|
108,320
|
$
|
110,742
|
$
|
93,417
|
New Zealand
|
|
24,608
|
|
22,247
|
|
25,339
|
United States
|
|
121,502
|
|
111,990
|
|
110,566
|
Total revenue
|
$
|
254,430
|
$
|
244,979
|
$
|
229,322
|
Note 23 – Unaudited Quarterly Financial Information (dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
2012
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
Revenue
|
$
|
62,431
|
$
|
62,948
|
$
|
63,934
|
$
|
65,117
|
Net income (loss)
|
$
|
(109)
|
$
|
224
|
$
|
396
|
$
|
(1,917)
|
Net income (loss) attributable to Reading International, Inc. shareholders
|
$
|
(239)
|
$
|
239
|
$
|
363
|
$
|
(1,277)
|
Basic earnings (loss) per share
|
$
|
(0.01)
|
$
|
0.01
|
$
|
0.02
|
$
|
(0.06)
|
Diluted earnings (loss) per share
|
$
|
(0.01)
|
$
|
0.01
|
$
|
0.02
|
$
|
(0.06)
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
54,044
|
$
|
66,960
|
$
|
66,554
|
$
|
57,421
|
Net income (loss)
|
$
|
(2,247)
|
$
|
17,613
|
$
|
291
|
$
|
(4,761)
|
Net income (loss) attributable to Reading International, Inc. shareholders
|
$
|
(2,480)
|
$
|
17,432
|
$
|
38
|
$
|
(5,034)
|
Basic earnings (loss) per share
|
$
|
(0.11)
|
$
|
0.76
|
$
|
--
|
$
|
(0.21)
|
Diluted earnings (loss) per share
|
$
|
(0.11)
|
$
|
0.76
|
$
|
--
|
$
|
(0.22)
|
Note 24 - Future Minimum Rental Income
Real estate revenue amounted to $19.7 million, $19.1 million, and $18.2 million, for the years ended December 31, 2012, 2011, and 2010, respectively. Future minimum rental income under all contractual operating leases is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2013
|
$
|
10,913
|
|
|
2014
|
|
7,596
|
|
|
2015
|
|
7,258
|
|
|
2016
|
|
5,934
|
|
|
2017
|
|
231
|
|
|
Thereafter
|
|
30,711
|
|
|
Total future minimum rental income
|
$
|
62,643
|
|
Note 25 – Related Parties and Transactions
Sutton Hill Capital
In 2001, we entered into a transaction with Sutton Hill Capital, LLC (“SHC”) regarding the leasing with an option to purchase of certain cinemas located in Manhattan. In connection with that transaction, we also agreed to lend certain amounts to SHC, to provide liquidity
in its investment, pending our determination whether or not to exercise our option to purchase and to manage the 86th Street Cinema on a fee basis. SHC is a limited liability company owned in equal shares by James J. Cotter and Michael Forman and of which Mr. Cotter is the managing member. During 2012, 2011, and 2010, we paid rent to SHC in the amount of $590,000, $590,000, and $547,000, respectively.
On June 29, 2010, we agreed to extend our existing lease from SHC of the Village East Cinema in New York City by 10 years, with a new termination date of June 30, 2020. The Village East lease includes a sub-lease of the ground underlying the cinema that is subject to a longer-term ground lease between SHC and an unrelated third party that expires in June 2031 (the “cinema ground lease”). The extended lease provides for a call option pursuant to which Reading may purchase the cinema ground lease for $5.9 million at the end of the lease term. Additionally, the lease has a put option pursuant to which SHC may require Reading to purchase all or a portion of SHC’s interest in the existing cinema lease and the cinema ground lease at any time between July 1, 2013 and December 4, 2019. SHC’s put option may be exercised on one or more occasions in increments of not less than $100,000 each. Because our Chairman, Chief Executive Officer, and controlling shareholder, Mr. James J. Cotter, is also the managing member of SHC, RDI and SHC are considered entities under common control. As a result, we recorded the Village East Cinema building as a property asset of $4.7 million on our balance sheet based on the cost carry-over basis from an entity under common control with a corresponding capital lease liability of $5.9 million presented under other liabilities (see Note 15 –
Other Liabilities
). This resulted in a deemed equity distribution of $877,000.
In 2005, we acquired from a third party the fee interest and from SHC its interest in the ground lease estate underlying the Cinemas 1, 2 & 3 in Manhattan. In connection with that transaction, we agreed to grant to SHC an option to acquire a 25% interest in the special purpose entity formed to acquire these interests at cost. On June 28, 2007, SHC exercised this option, paying the option exercise price through the application of their $3.0 million deposit plus the assumption of its proportionate share of SHP’s liabilities giving it a 25% non-managing membership interest in SHP.
OBI Management Agreement
Pursuant to a Theater Management Agreement (the “Management Agreement”), our live theater operations are managed by OBI LLC (“OBI Management”), which is wholly owned by Ms. Margaret Cotter who is the daughter of James J. Cotter and a member of our Board of Directors.
The Management Agreement generally provides that we will pay OBI Management a combination of fixed and incentive fees, which historically have equated to
approximately 21% of the net cash flow received by us from
our live theaters in New York. Since the fixed fees are applicable only during such periods as the New York theaters are booked, OBI Management receives no compensation with respect to a theater at any time when it is not generating revenue for us. This arrangement provides an incentive to OBI Management to keep the theaters booked with the best available shows, and mitigates the negative cash flow that would result from having an empty theater. In addition, OBI Management manages our Royal George live theater complex in Chicago on a fee basis based on theater cash flow. In 2012, OBI Management earned $390,000, which was 19.7% of net cash flows for the year. In 2011, OBI Management earned $398,000, which was 19.4% of net cash flows for the year. In 2010, OBI Management earned $416,000, which was 24.2% of net cash flows for the year. In each year, we reimbursed travel related expenses for OBI Management personnel with respect to travel between New York City and Chicago in connection with the management of the Royal George complex.
OBI Management conducts its operations from our office facilities on a rent-free basis, and we share the cost of one administrative employee of OBI Management. Other than these expenses and travel-related expenses for OBI Management personnel to travel to Chicago as referred to above, OBI Management is responsible for all of its costs and expenses related to the performance of its management functions. The Management Agreement renews automatically each year unless either party gives at least six months’ prior notice of its determination to allow the Management Agreement to expire. In addition, we may terminate the Management Agreement at any time for cause.
Live Theater Play Investment
From time to time, our officers and directors may invest in plays that lease our live theaters. The play STOMP has been playing in our Orpheum Theatre since prior to the time we acquired the theater in 2001. Messrs. James J. Cotter and Michael Forman own an approximately 5% interest in that play, an interest that they have held since prior to our acquisition of the theater.
Shadow View Land and Farming LLC
During the 2012, Mr. James J. Cotter, our Chairman, Chief Executive Officer and controlling shareholder, contributed $2.5 million of cash and $255,000 of his 2011 bonus as his 50% share of the purchase price of a land parcel in Coachella, California and to cover his 50% share of certain costs associated with that acquisition. This land is held in Shadow View Land and Farming, LLC, in which Mr. Cotter owns a 50% interest
. We are the managing member of Shadow View Land and Farming, LLC.
Note 26 – Casualty Loss
Our
8
-screen complex in Christchurch, New Zealand, was damaged as a result of the devastating earthquake suffered by that city
on February 22, 2011. We have earthquake and lost profits insurance on that facility for which we have received to date $1.1 million (NZ$1.3 million) which is included in our other income (expense). We are awaiting a final settlement payment on this claim for a nominally estimated amount to be received in 2013. This cinema was reopened on November 17, 2011, but, as a result of a December 23, 2011 earthquake, the cinema was again temporarily closed for approximately two weeks.
Additionally, the 3-screen complex in Christchurch, New Zealand owned by our Rialto Cinemas joint venture entity (“Rialto Cinemas”), was damaged as a result of the devastating earthquake suffered by that city on February 22, 2011, and has been closed since that date. Pursuant to the lease on the property, in May 2011, Rialto Cinemas gave notice to the landlord that Rialto Cinemas would be terminating the cinema lease. Rialto Cinemas and the landlord have terminated the lease under agreeable terms and did not result in a significant
reduction to the value of our investment in the Rialto Cinemas joint venture relative to its carrying value.
Schedule II – Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at beginning of year
|
|
Additions charged to costs and expenses
|
|
Deductions
|
|
Balance at end of year
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
Year-ended December 31, 2012 – Allowance for doubtful accounts
|
$
|
53
|
$
|
367
|
$
|
211
|
$
|
209
|
Year-ended December 31, 2011 – Allowance for doubtful accounts
|
$
|
58
|
$
|
153
|
$
|
158
|
$
|
53
|
Year-ended December 31, 2010 – Allowance for doubtful accounts
|
$
|
207
|
$
|
69
|
$
|
218
|
$
|
58
|
|
|
|
|
|
|
|
|
|
Tax valuation allowance
|
|
|
|
|
|
|
|
|
Year-ended December 31, 2012 – Tax valuation allowance
|
$
|
38,461
|
$
|
--
|
$
|
558
|
$
|
37,903
|
Year-ended December 31, 2011 – Tax valuation allowance
|
$
|
54,513
|
$
|
--
|
$
|
16,052
|
$
|
38,461
|
Year-ended December 31, 2010 – Tax valuation allowance
|
$
|
59,603
|
$
|
--
|
$
|
5,090
|
$
|
54,513
|
Item 9 – Change in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A — Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f), including maintenance of (i) records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, and (ii) policies and procedures that provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, (b) our receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors and (c) we will prevent or timely detect unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of the inherent limitations of any system of internal control. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses of judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper overriding of controls. As a result of such limitations, there is risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012. The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Disclosure Controls and Procedures
We have formally adopted a policy for disclosure controls and procedures that provides guidance on the evaluation of disclosure controls and procedures and is designed to ensure that all corporate disclosure is complete and accurate in all material respects and that all information required to be disclosed in the periodic reports submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods and in the manner specified in the Securities and Exchange Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. A disclosure committee consisting of the principal accounting officer, general counsel, senior officers of each significant business line and other select employees assisted the Chief Executive Officer and the Chief Financial Officer in this evaluation. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as required by the Securities Exchange Act Rule 13a-15(e) and 15d – 15(e) as of the end of the period covered by this report.
Changes in Internal Controls Over Financial Reporting
No changes in internal control over financial reporting occurred during the quarter ended December 31,
2012,
that have materially affected, or are likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Reading International, Inc.
Los Angeles, California
We have audited the internal control over financial reporting of Reading International, Inc. and subsidiaries (the “Company”) as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2012 and our report dated
March 19, 2013
expressed an unqualified opinion on those consolidated financial statements.
/s/ Grant Thornton LLP
Los Angeles, California
March 19, 2013
PART III
Items 10, 11, 12, 13 and 14
Information required by Part II (Items 10, 11, 12, 13 and 14) of this From 10-K is herby incorporated by reference from the Reading International, Inc.’s definitive Proxy Statement for its
2013
Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year.
PART IV
Item 15 – Exhibits, Financial Statement Schedules
(a) The following documents are filed as a part of this report:
1.
Financial Statements
The following financial statements are filed as part of this report under Item 8 –
Financial Statements and Supplementary Data
.
Description
Page
Reports of Independent Registered Accounting Firm
...................................................................................................................
54
Consolidated Balance Sheets as of December 31,
2012
and
2011
........................................................................................
56
Consolidated Statements of Operations for the Three Years Ended December 31,
2012
...........................................
57
Consolidated Statements of Comprehensive Income (Loss) for the Three Years Ended December 31,
2012
58
Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31,
2012
.....................
59
Consolidated Statements of Cash Flows for the Three Years Ended December 31,
2012
.........................................
60
Notes to Consolidated Financial Statements
....................................................................................................................................
61
2.
|
Financial Statements and Schedules for the years ended December 31,
2012
,
2011,
and
2010
|
Schedule II – Valuation and Qualifying Accounts
.........................................................................................................................
102
Financial Statements of Mt. Gravatt Cinemas Joint Venture
.................................................................................................
108
3.
Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K
..........................................
125
(b) Exhibits Required by Item 601 of Regulation S-K
See Item (a) 3. above.
(c) Financial Statement Schedule
See Item (a) 2. above.
Following are financial statements and notes of Mt. Gravatt Cinemas Joint Venture for the periods indicated. We are required to include in our Report on Form 10-K audited financial statements for the years ended December 31, 2012, 2011, and 2010.
Mt. Gravatt Cinemas Joint Venture
Statements of Comprehensive Income
For the Year Ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
Note
|
|
2012
|
|
2011
|
|
2010
|
Revenue from rendering services
|
5
|
$
|
10,689,440
|
$
|
10,022,854
|
$
|
10,378,232
|
Revenue from sale of concession
|
|
|
4,015,329
|
|
3,625,410
|
|
3,646,982
|
Total revenue
|
|
|
14,704,769
|
|
13,648,264
|
|
14,025,214
|
|
|
|
|
|
|
|
|
Film expenses
|
|
|
(4,311,436)
|
|
(3,974,267)
|
|
(4,200,089)
|
Personnel expenses
|
6
|
|
(1,845,515)
|
|
(1,925,190)
|
|
(2,084,251)
|
Occupancy expenses
|
|
|
(1,584,751)
|
|
(1,521,307)
|
|
(1,413,895)
|
House expenses
|
|
|
(1,260,328)
|
|
(1,159,484)
|
|
(1,182,071)
|
Cost of concession
|
|
|
(944,355)
|
|
(851,575)
|
|
(913,716)
|
Depreciation and amortization expenses
|
11
|
|
(597,349)
|
|
(555,594)
|
|
(573,224)
|
Advertising and marketing costs
|
|
|
(313,791)
|
|
(334,325)
|
|
(325,214)
|
Management fees
|
|
|
(261,004)
|
|
(253,914)
|
|
(243,290)
|
Repairs and maintenance expense
|
|
|
(217,289)
|
|
(182,566)
|
|
(163,994)
|
Results for operating activities
|
|
|
3,368,951
|
|
2,890,042
|
|
2,925,470
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
21,256
|
|
58,301
|
|
19,522
|
Net finance income
|
7
|
|
21,256
|
|
58,301
|
|
19,522
|
Profit for the period
|
|
$
|
3,390,207
|
$
|
2,948,343
|
$
|
2,944,992
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
Other comprehensive income for the period
|
|
|
--
|
|
--
|
|
--
|
Total comprehensive income for the period
|
|
$
|
3,390,207
|
$
|
2,948,343
|
$
|
2,944,992
|
The accompanying notes are an integral part of these financial statements.
Mt. Gravatt Cinemas Joint Venture
Statements of Changes in Equity
For the Year Ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
Birch Carroll & Coyle Limited
|
|
Reading Exhibition Pty Ltd
|
|
Village Roadshow Exhibition Pty Ltd
|
|
Total
|
Members’ Equity at December 31, 2009 (Unaudited)
|
$
|
1,166,261
|
$
|
1,166,260
|
$
|
1,166,260
|
$
|
3,498,781
|
|
|
|
|
|
|
|
|
|
Member distributions
|
|
(850,000)
|
|
(850,000)
|
|
(850,000)
|
|
(2,550,000)
|
Total other comprehensive income
|
|
--
|
|
--
|
|
--
|
|
--
|
Profit for the period
|
|
981,664
|
|
981,664
|
|
981,664
|
|
2,944,992
|
Total comprehensive income for the period
|
|
981,664
|
|
981,664
|
|
981,664
|
|
2,944,992
|
Members’ Equity at December 31, 2010
|
$
|
1,297,925
|
$
|
1,297,924
|
$
|
1,297,924
|
$
|
3,893,773
|
|
|
|
|
|
|
|
|
|
Member distributions
|
|
(700,000)
|
|
(700,000)
|
|
(700,000)
|
|
(2,100,000)
|
Total other comprehensive income
|
|
--
|
|
--
|
|
--
|
|
--
|
Profit for the period
|
|
982,780
|
|
982,781
|
|
982,781
|
|
2,948,342
|
Total comprehensive income for the period
|
|
982,780
|
|
982,781
|
|
982,781
|
|
2,948,342
|
Members’ Equity at December 31, 2011
|
$
|
1,580,705
|
$
|
1,580,705
|
$
|
1,580,705
|
$
|
4,742,115
|
|
|
|
|
|
|
|
|
|
Member distributions
|
|
(1,350,000)
|
|
(1,350,000)
|
|
(1,350,000)
|
|
(4,050,000)
|
Total other comprehensive income
|
|
--
|
|
--
|
|
--
|
|
--
|
Profit for the period
|
|
1,130,069
|
|
1,130,069
|
|
1,130,069
|
|
3,390,207
|
Total comprehensive income for the period
|
|
1,130,069
|
|
1,130,069
|
|
1,130,069
|
|
3,390,207
|
Members’ Equity at December 31, 2012
|
$
|
1,360,774
|
$
|
1,360,774
|
$
|
1,360,774
|
$
|
4,082,322
|
The accompanying notes are an integral part of these financial statements.
Mt. Gravatt Cinemas Joint Venture
Statements of Financial Position
For the Year Ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
Note
|
|
2012
|
|
2011
|
ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
8
|
$
|
898,217
|
$
|
1,590,333
|
Trade receivables
|
9
|
|
196,598
|
|
143,488
|
Inventories
|
10
|
|
173,411
|
|
153,899
|
Total current assets
|
|
|
1,268,226
|
|
1,887,720
|
Property, plant and equipment
|
11
|
|
3,923,871
|
|
3,737,955
|
Total non-current assets
|
|
|
3,923,871
|
|
3,737,955
|
Total assets
|
|
$
|
5,192,097
|
$
|
5,625,675
|
|
|
|
|
|
|
Trade and other payables
|
12
|
$
|
878,026
|
$
|
657,891
|
Employee benefits
|
13
|
|
162,961
|
|
128,377
|
Deferred revenue
|
14
|
|
27,683
|
|
39,068
|
Total current liabilities
|
|
|
1,068,670
|
|
825,336
|
Employee benefits
|
13
|
|
41,105
|
|
58,224
|
Total non-current liabilities
|
|
|
41,105
|
|
58,224
|
Total liabilities
|
|
|
1,109,775
|
|
883,560
|
|
|
|
|
|
|
Net assets
|
|
$
|
4,082,322
|
$
|
4,742,115
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Contributed equity
|
|
|
202,593
|
|
202,593
|
Retained earnings
|
|
|
3,879,729
|
|
4,539,522
|
Total equity
|
|
$
|
4,082,322
|
$
|
4,742,115
|
The accompanying notes are an integral part of these financial statements.
Mt. Gravatt Cinemas Joint Venture
Statements of Cash Flows
For the Year Ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
Note
|
|
2012
|
|
2011
|
|
2010
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Cash receipts from customers
|
|
$
|
16,091,198
|
$
|
14,889,678
|
$
|
15,424,727
|
Cash paid to suppliers and employees
|
|
|
(11,971,304)
|
|
(11,450,521)
|
|
(11,905,889)
|
Net cash provided from operating activities
|
18
|
|
4,119,894
|
|
3,439,157
|
|
3,518,838
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
11
|
|
(783,266)
|
|
(1,309,432)
|
|
(265,351)
|
Interest received
|
7
|
|
21,256
|
|
58,301
|
|
19,522
|
Net cash used in investing activities
|
|
|
(762,010)
|
|
(1,251,131)
|
|
(245,829)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Distributions to Joint Venturers
|
|
|
(4,050,000)
|
|
(2,100,000)
|
|
(2,550,000)
|
Net cash used in financing activities
|
|
|
(4,050,000)
|
|
(2,100,000)
|
|
(2,550,000)
|
|
|
|
|
|
|
|
|
Net increase/ (decrease) in cash and cash equivalents
|
|
|
(692,116)
|
|
88,024
|
|
723,009
|
Cash and cash equivalents at 1 January
|
|
|
1,590,333
|
|
1,502,309
|
|
779,300
|
Cash and cash equivalents at 31 December
|
8
|
$
|
898,217
|
$
|
1,590,333
|
$
|
1,502,309
|
The accompanying notes are an integral part of these financial statements.
Mt. Gravatt Cinemas Joint Venture
Notes to Financial Statements
December 31, 2012
1.
Reporting entity
Mt. Gravatt Cinemas Joint Venture (the “Joint Venture”) is a legal joint venture between Birch Carrol & Coyle Ltd, Reading Exhibition Pty Ltd and Village Roadshow Exhibition Pty Ltd. The Joint Venture is domiciled and provides services solely in Australia. The address of the Joint Venture’s registered office is 227 Elizabeth Street, Sydney NSW 2000. The Joint Venture primarily is involved in the exhibition of motion pictures at one cinema site.
The joint venture is to continue in existence until the Joint Venture is terminated and associated underlying assets have been sold and the proceeds of sale distributed upon agreement of the members. All distributions of earnings are required to be agreed upon and distributed evenly to the three Joint Venturers. The three Joint Venturers will evenly contribute any future required contributions.
2
.
Basis of presentation
(a)
Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with the International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board.
The financial year end of the Joint Venture is 30 June. For purposes of the use of these financial statements by one of the Joint Venturers, these financial statements have been prepared on a 12-month period basis ending on 31 December.
The financial statements were approved by the Management Committee on 4th March 2013.
(b)
Basis of measurement
The financial statements have been prepared on the historical cost basis. The methods used to measure fair values are discussed further in Note 4,
Determination of fair values
.
(c)
Functional and presentation currency
These financial statements are presented in Australian dollars, which is also the Joint Venture’s functional currency. Amounts in the financial statements have been rounded to the nearest dollar, unless otherwise stated.
(d)
Use of estimates and judgments
The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in Note 15,
Financial instruments
.
3
.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
The Joint Venture has not elected to early adopt any accounting standards and amendments. See Note 3
(n)
.
(a)
Financial instruments
Non-derivative financial instruments comprise trade receivables, cash and cash equivalents, and trade payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.
A financial instrument is recognised if the Joint Venture becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Joint Venture’s contractual rights to the cash flows from the financial assets expire or if the Joint Venture transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Joint Venture commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Joint Venture’s obligations specified in the contract expire, are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Joint Venture’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Accounting for finance income and expense is discussed in Note 3
(k)
,
Finance income
.
(b)
Property, plant and equipment
(i)
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use. Costs also may include purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets are capitalised as part of the cost of that asset.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
(ii)
Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Joint Venture and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
(iii)
Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
Leasehold improvements
Shorter of estimated useful life and term of lease
Plant and equipment
3 to 20 years
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
(c)
Leased assets
Leases in which the Joint Venture assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and are not recognised on the Joint Venture’s statement of financial position.
(d)
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
(e)
Impairment
(i)
Financial assets
A financial asset is assessed at each reporting date to determine whether there is
any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance against the relevant asset. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(ii)
Non-financial assets
The carrying amounts of the Joint Venture’s non-financial assets, other than inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.
In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(f)
Employee benefits
(i)
Long-term employee benefits
The Joint Venture’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on-costs; that benefit is discounted to determine its present value and the fair value of any related assets is deducted.
(ii)
Termination benefits
Termination benefits are recognised as an expense when the Joint Venture is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Joint Venture has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
(iii)
Short-term benefits
Liabilities for employee benefits for wages, salaries, and annual leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Joint Venture expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax.
(g)
Provisions
A provision is recognised if, as a result of a past event, the Joint Venture has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
(h)
Contributed equity
The Joint Venture is comprised of three parties who share an equal ownership over the Joint Venture. The Contributed Equity amount represents the initial investment in the partnership. Distributions to the partners are made on behalf of the Joint Venture and are recognised through retained earnings.
(i)
Revenue
Rendering of service/sale of concessions
Revenue is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and value rebates. Revenues are generated principally through admissions and concession sales with proceeds received in cash at the point of sale. Service revenue also includes product advertising and other ancillary revenues, such as booking fees, which are recognised as income in the period earned. The Joint Venture recognises payments received attributable to the advertising services provided by the Joint Venture under certain vendor programs as revenue in the period in which services are delivered.
(j)
Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease on a basis that is representative of the pattern of benefit derived from the leased property.
(k)
Finance income
Finance income comprises interest income on cash held in financial institutions. Interest income is recognised as it accrues in profit or loss using the effective interest method.
(l)
Taxes
(i)
Goods and service tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.
(ii)
Income tax
Under applicable Australian law, the Joint Venture is not subject to tax on earnings generated. Accordingly the Joint Venture does not recognise any income tax expense, or deferred tax balances. Earnings of the Joint Venture are taxed at the Joint Venturer level.
(m)
Film expense
Film expense is incurred based on a contracted percentage of box office results for each film. The Joint Venture negotiates terms with each film distributor on a film-by-film basis. Percentage terms are based on a sliding scale, with the Joint Venture subject to a higher percentage of box office results when the film is initially released and declining each subsequent week. Different films have different rates dependent upon the expected popularity of the film, and forecasted success.
(n)
New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 31 December 2012, but have not been applied in preparing this financial report:
AASB 9 Financial Instruments (2010), AASB 9 Financial Instruments (2009) AASB 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under AASB 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. AASB 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project that may result in limited amendments to the classification and measurement requirements of AASB 9 and add new requirements to address the impairment of financial assets and hedge accounting.
AASB 9 (2010 and 2009) are effective for annual periods beginning on or after 1 January 2015 with early adoption permitted. The Company has not yet determined the potential effect of the standard.
The Joint Venture does not consider that any other standards or interpretations issued by the IASB or the IFRIC, either applicable in the current year or not yet applicable, have, or will have, a significant impact on the financial statements.
(o)
Amounts paid or payable to the auditor
The amounts paid or payable to the auditor for the audit of these financial statements has been borne by one of the Joint Venturers for which these financial statements have been prepared. The auditor provided no non-audit service in the current or prior periods disclosed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Audit fees
|
|
|
|
$
|
57,500
|
$
|
57,500
|
4
.
Determination of fair values
A number of the Joint Venture’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
(i)
Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.
(ii)
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
5
.
Revenue from rendering of services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
|
2012
|
|
2011
|
|
2010
|
Box office revenue
|
|
|
9,508,154
|
|
9,019,423
|
|
9,659,151
|
Screen advertising
|
|
|
286,501
|
|
249,524
|
|
251,325
|
Booking fees
|
|
|
268,180
|
|
200,017
|
|
187,206
|
Other cinema services
|
|
|
626,605
|
|
553,890
|
|
280,550
|
|
|
$
|
10,689,440
|
$
|
10,022,854
|
$
|
10,378,232
|
6
.
Personnel expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
|
2012
|
|
2011
|
|
2010
|
Wages and salaries
|
|
|
1,767,789
|
|
1,846,267
|
|
1,987,041
|
Change in liability for annual leave
|
|
|
65,274
|
|
57,628
|
|
67,604
|
Change in liability for long-service leave
|
|
|
12,452
|
|
21,295
|
|
29,606
|
|
|
$
|
1,845,515
|
$
|
1,925,190
|
$
|
2,084,251
|
7
.
Finance income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
|
2012
|
|
2011
|
|
2010
|
Interest income on cash at bank:
|
|
|
21,256
|
|
58,301
|
|
19,522
|
|
|
$
|
21,256
|
$
|
58,301
|
$
|
19,522
|
8
.
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
Note
|
|
|
|
2012
|
|
2011
|
Cash at bank and on hand
|
15
|
|
|
|
898,217
|
|
1,590,333
|
Cash and cash equivalents in the statement of cash flows
|
|
|
|
$
|
898,217
|
$
|
1,590,333
|
The Joint Venture’s exposure to interest rate risk is disclosed in Note 15
(e)
,
Financial instruments, Market risk
.
9
.
Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
Note
|
|
|
|
2012
|
|
2011
|
Trade receivables
|
15
|
|
|
|
196,598
|
|
143,488
|
|
|
|
|
$
|
196,598
|
$
|
143,488
|
The Joint Venture’s trade receivables relate mainly to the Joint Venture’s screen advertiser and credit card companies.
The Joint Venture’s exposure to credit risk and impairment losses related to trade receivables is disclosed in Note 15
(c)
,
Financial instruments, Credit risk
.
10
.
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Concession stores at cost
|
|
|
|
|
173,411
|
|
153,899
|
|
|
|
|
$
|
173,411
|
$
|
153,899
|
11
.
Property, Plant, and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
Plant and Equipment
|
|
Leasehold Improvements
|
|
Capital WIP
|
|
Total
|
Cost
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
9,347,006
|
|
2,566,704
|
|
265,351
|
|
12,179,061
|
Additions
|
|
--
|
|
--
|
|
1,309,433
|
|
1,309,433
|
Transfers
|
|
1,111,257
|
|
221,080
|
|
(1,332,337)
|
|
--
|
Balance at December 31, 2011
|
$
|
10,458,263
|
$
|
2,787,784
|
$
|
242,447
|
$
|
13,488,494
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012
|
|
10,458,263
|
|
2,787,784
|
|
242,446
|
|
13,488,493
|
Additions
|
|
--
|
|
--
|
|
783,266
|
|
783,266
|
Transfers
|
|
94,123
|
|
4,900
|
|
(99,023)
|
|
--
|
Balance at December 31, 2012
|
$
|
10,552,386
|
$
|
2,792,684
|
$
|
926,689
|
$
|
14,271,759
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
Plant and Equipment
|
|
Leasehold Improvements
|
|
Capital WIP
|
|
Total
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
(8,224,886)
|
|
(970,059)
|
|
--
|
|
(9,194,945)
|
Depreciation and amortisation
|
|
(463,815)
|
|
(91,779)
|
|
--
|
|
(555,594)
|
Disposals
|
|
--
|
|
--
|
|
--
|
|
--
|
Balance at December 31, 2011
|
$
|
(8,688,701)
|
$
|
(1,061,838)
|
$
|
--
|
$
|
(9,750,539)
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012
|
|
(8,688,701)
|
|
(1,061,838)
|
|
--
|
|
(9,750,539)
|
Depreciation and amortisation
|
|
(492,890)
|
|
(104,459)
|
|
--
|
|
(597,349)
|
Balance at December 31, 2012
|
$
|
(9,181,591)
|
$
|
(1,166,297)
|
$
|
--
|
$
|
(10,347,888)
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
Plant and Equipment
|
|
Leasehold Improvements
|
|
Capital WIP
|
|
Total
|
Carrying amounts
|
|
|
|
|
|
|
|
|
At January 1, 2011
|
$
|
1,122,120
|
$
|
1,596,645
|
$
|
265,351
|
$
|
2,984,116
|
At December 31, 2011
|
|
1,769,563
|
|
1,725,946
|
|
242,446
|
|
3,737,955
|
At January 1, 2012
|
|
1,769,563
|
|
1,725,946
|
|
242,446
|
|
3,737,955
|
At December 31, 2012
|
|
1,370,795
|
|
1,626,387
|
|
926,689
|
|
3,923,871
|
12
.
Trade and other payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
Note
|
|
|
|
2012
|
|
2011
|
Trade payables
|
|
|
|
|
413,082
|
|
365,188
|
Non-trade payables and accruals
|
|
|
|
|
464,944
|
|
292,703
|
|
15
|
|
|
$
|
878,026
|
$
|
657,891
|
The Joint Venture’s exposure to liquidity risk related to trade and other payables is disclosed in Note 15
(d)
,
Financial instruments, Liquidity risk
. Trade payables represents payments to trade creditors. The Joint Venture makes these payments through the managing party’s shared service centre and is charged a management fee for these services. Disclosure regarding the management fee is made in Note 19,
Related parties
.
13
.
Employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Liability for annual leave
|
|
|
|
|
102,540
|
|
82,698
|
Liability for long-service leave
|
|
|
|
|
60,421
|
|
45,679
|
|
|
|
|
$
|
162,961
|
$
|
128,377
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Liability for long-service leave
|
|
|
|
|
41,105
|
|
58,224
|
|
|
|
|
$
|
41,105
|
$
|
58,224
|
14
.
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Deferred revenue
|
|
|
|
|
27,683
|
|
39,068
|
|
|
|
|
$
|
27,683
|
$
|
39,068
|
Deferred revenue mainly consists of advance funds received from vendors for the exclusive rights to supply certain concession items. Revenue is recognised over the term of the related contract on a straight-line basis and is classified as service revenue.
15
.
Financial instruments
(a)
Overview
This note presents information about the Joint Venture’s exposure to financial risks, its objectives, policies, and processes for measuring and managing risk, and the management of capital.
The Joint Venture’s activities expose it to the following financial risks;
(b)
Risk management framework
The Joint Venturers’ have overall responsibility for the establishment and oversight of the risk management framework and are also responsible for developing and monitoring risk management policies.
Risk management policies are established to identify and analyse the risks faced by the Joint Venture to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Joint Venture’s activities. The Joint Venture, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Joint Venturers’ oversee how management monitors compliance with the Joint Venture’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Joint Venture.
There were no changes in the Joint Venture’s approach to capital management during the year.
(c
)
Credit risk
Credit risk is the risk of financial loss to the Joint Venture if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Joint Venture’s receivables from customers.
The Joint Venture’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Joint Venture’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk.
Customers that are graded as “high risk” are placed on a restricted customer list, and monitored by the Joint Venturers.
The Joint Venture operates under the managing Joint Venturer’s credit policy under which each new customer is analysed individually for creditworthiness before the Joint Venture’s standard payment and delivery terms and conditions are offered. The Joint Venture’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer. These limits are reviewed periodically. Customers that fail to meet the Joint Venture’s benchmark creditworthiness may transact with the Joint Venture only on a prepayment basis.
Exposure to credit risk
The carrying amount of the Joint Venture’s financial assets represents the maximum credit exposure. The Joint Venture’s maximum exposure to credit risk at the reporting date was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
In AUS$
|
Note
|
|
|
|
2012
|
|
2011
|
Trade receivables
|
9
|
|
|
$
|
196,598
|
$
|
143,488
|
Cash and cash equivalents
|
8
|
|
|
|
898,217
|
|
1,590,333
|
The Joint Venture’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Screen advertisers
|
|
|
|
|
72,181
|
|
63,696
|
Credit card companies
|
|
|
|
|
114,418
|
|
71,242
|
Games, machine and merchandising companies
|
|
|
|
|
9,999
|
|
8,550
|
|
|
|
|
$
|
196,598
|
$
|
143,488
|
Impairment losses
None of the Company’s trade receivables are past due (2011: $nil). There were no allowances for impairment at 31 December 2012 or 2011.
(d)
Liquidity risk
Liquidity risk is the risk that the Joint Venture will encounter difficulties in meeting its financial obligations as they fall due. The Joint Venture’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Joint Venture’s reputation.
The only financial liabilities are trade and other payables all of which are contractually due within 12 months. The carrying value of such liabilities at 31 December 2012 is $878,026 (2011: $657,891).
(e)
Market risk
Market risk is the risk that changes in market prices, such as interest rates, will affect the Joint Venture’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Joint Venture is not subject to market risks relating to foreign exchange rates or equity prices. Furthermore, the Joint Venture does not use derivative, financial instruments to hedge fluctuations in interest rates.
Interest rate risk
At the reporting date the interest rate profile of the Joint Venture’s interest-bearing financial instruments was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate instruments
|
|
|
|
|
Carrying amount
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Cash at bank
|
|
|
|
$
|
855,715
|
$
|
1,461,138
|
The Joint Venture held no fixed rate instruments during financial years 2012 or 2011.
(f)
Fair values
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
In AUS$
|
|
Carrying amount
|
|
Fair value
|
|
Carrying amount
|
|
Fair value
|
Trade receivables
|
$
|
196,598
|
$
|
196,598
|
$
|
143,488
|
$
|
143,488
|
Cash and cash equivalents
|
|
898,217
|
|
898,217
|
|
1,590,333
|
|
1,590,333
|
Trade and other payables
|
|
878,026
|
|
878,026
|
|
657,891
|
|
657,891
|
The basis for determining fair values is disclosed in Note 4,
Determination of fair values
.
(g)
Capital
Capital consists of contributed equity and retained earnings. The contributed equity amount represents the initial investment in the partnership. The Managing Committee’s policy is to maintain a strong capital base so as to maintain creditor confidence and to sustain future development of the business. There were no externally imposed capital requirements during the financial years 2012 or 2011.
16.
Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
|
|
|
|
2012
|
|
2011
|
Less than one year
|
|
|
|
|
1,277,754
|
|
1,277,754
|
Between one and five years
|
|
|
|
|
5,111,016
|
|
5,111,016
|
More than five years
|
|
|
|
|
1,225,244
|
|
2,506,498
|
Total
|
|
|
|
$
|
7,614,014
|
$
|
8,895,268
|
The Joint Venture leases the cinema property under a long term operating lease.
The prior year operating lease commitments have been amended to exclude property outgoings which is consistent in the current year.
17
.
Contingencies and capital commitments
The nature of the Joint Venture’s operations results in claims for personal injuries (including public liability and workers compensation) being received from time to time. As at period end there were no material current or ongoing outstanding claims.
The Joint Venture has no capital commitments at 31 December 2012 (2011: $nil).
18
.
Reconciliation of cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In AUS$
|
Note
|
|
2012
|
|
2011
|
|
2010
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Profit for the period
|
|
|
3,390,207
|
|
2,948,343
|
|
2,944,992
|
Adjustments for:
|
|
|
|
|
|
|
|
Depreciation and amortisation
|
11
|
|
597,349
|
|
555,594
|
|
573,224
|
Interest received
|
7
|
|
(21,256)
|
|
(58,301)
|
|
(19,522)
|
Loss on disposal of property, plant, and equipment
|
|
|
--
|
|
--
|
|
10,771
|
Operating profit before changes in working capital
|
|
$
|
3,966,300
|
$
|
3,445,636
|
$
|
3,509,465
|
Change in trade receivables
|
9
|
|
(53,110)
|
|
(53,892)
|
|
7,763
|
Change in inventories
|
10
|
|
(19,512)
|
|
81,620
|
|
(96,837)
|
Change in prepayments and other receivables
|
|
|
--
|
|
--
|
|
109,099
|
Change in trade and other payables
|
12
|
|
220,135
|
|
7,388
|
|
(40,721)
|
Change in employee benefits
|
13
|
|
17,466
|
|
9,195
|
|
47,027
|
Change in deferred revenue
|
14
|
|
(11,385)
|
|
(50,790)
|
|
(16,958)
|
Net cash from operating activities
|
|
$
|
4,119,894
|
$
|
3,439,157
|
$
|
3,518,838
|
19
.
Related parties
Entities with joint control or significant influence over the Joint Venture.
The managing Joint Venturer is paid an annual management fee, which is presented separately in the statement of comprehensive income. The management fee paid is as per the Joint Venture agreement and is to cover the costs of managing and operating the cinema complex and providing all relevant accounting and support services. The management fee is based on a contracted base amount, increased by the Consumer Price Index for the City of Brisbane as published by the Australian Bureau of Statistics on an annual basis. Such management fee agreement is binding over the life of the agreement which shall continue in existence until the Joint Venture is terminated under agreement by the Joint Venturers.
As of 31 December 2012 the management fee payable was $nil (2011: $24,116).
20
.
Subsequent events
Subsequent to 31 December 2012, there were no events which would have a material effect on these financial statements.
Independent Auditors’ Report
The Management Committee and Joint Venturers
Mt. Gravatt Cinemas Joint Venture:
Report on the Financial Statements
We have audited the accompanying financial statements of Mt. Gravatt Cinemas Joint Venture, which comprise the statements of financial position as of December 31, 2012 and 2011 and the related statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mt. Gravatt Cinemas Joint Venture as of December 31, 2012 and 2011, and the results of its operations and its cash flows each of the years in the three-year period ended December 31, 2012, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ KPMG
Sydney, Australia
March 4, 2013
Exhibits
|
|
3.1
|
Certificate of Amendment and Restatement of Articles of Incorporation of Reading International, Inc., a Nevada corporation, as filed with the Nevada Secretary of State on May 22, 2003 (filed as Exhibit 3.8 to the Company’s report on Form 10-Q for the period ended June 30, 2009, and incorporated herein by reference).
|
3.2.1
|
Amended and Restated Bylaws of Reading International, Inc., a Nevada corporation (filed as Exhibit 3.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference).
|
3.2.2
|
Amended Article V of the Amended and Restated Bylaws of Reading International, Inc.
(filed as exhibit 3.2 to the Company’s report on Form 8-K dated December 27, 2007, and incorporated herein by reference).
|
3.3
|
Articles of Merger of Craig Merger Sub, Inc. with and into Craig Corporation (filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).
|
3.4
|
Articles of Merger of Reading Merger Sub, Inc. with and into Reading Entertainment, Inc. (filed as Exhibit 3.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).
|
4.1*
|
1999 Stock Option Plan of Reading International, Inc., as amended on December 31, 2001 (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed on January 21, 2004, and incorporated herein by reference).
|
4.2
|
Form of Preferred Securities Certificate evidencing the preferred securities of Reading International Trust I (filed as Exhibit 4.1 to the Company’s report on Form 8-K filed on February 9, 2007, and incorporated herein by reference).
|
4.3
|
Form of Common Securities Certificate evidencing common securities of Reading International Trust I (filed as Exhibit 4.2 to the Company’s report on Form 8-K filed on February 9, 2007, and incorporated herein by reference).
|
4.4
|
Form of Reading International, Inc. and Reading New Zealand, Limited, Junior Subordinated Note due 2027 (filed as Exhibit 4.3 to the Company’s report on Form 8-K filed on February 9, 2007, and incorporated herein by reference).
|
4.5
|
Form of Indenture (filed as Exhibit 4.4 to the Company’s report on Form S-3 on October 20, 2009, and incorporated herein by reference).
|
4.6*
|
2010 Stock Incentive Plan (filed as Exhibit 4.1 to the Company’s report on Form S-8 on May 26, 2010, and incorporated herein by reference).
|
4.7*
|
Form of Stock Option Agreement (filed as Exhibit 4.2 to the Company’s report on Form S-8 on May 26, 2010, and incorporated herein by reference).
|
4.8*
|
Form of Stock Bonus Agreement (filed as Exhibit 4.3 to the Company’s report on Form S-8 on May 26, 2010, and incorporated herein by reference).
|
4.9*
|
Form of Restricted Stock Agreement (filed as Exhibit 4.4 to the Company’s report on Form S-8 on May 26, 2010, and incorporated herein by reference).
|
4.10*
|
Form of Stock Appreciation Right Agreement (filed as Exhibit 4.5 to the Company’s report on Form S-8 on May 26, 2010, and incorporated herein by reference).
|
4.11*
|
Amendment to the 2010 Stock Incentive Plan (filed as Appendix A of the Company’s proxy statement on April 29, 2011, and incorporated here by reference).
|
10.1*
|
Employment Agreement, dated October 28, 1999, among Craig Corporation, Citadel Holding Corporation, Reading Entertainment, Inc., and Andrzej Matyczynski (filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).
|
10.2
|
Amended and Restated Lease Agreement, dated as of July 28, 2000, as amended and restated as of January 29, 2002, between Sutton Hill Capital, L.L.C. and Citadel Cinemas, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|
10.3
|
Amended and Restated Citadel Standby Credit Facility, dated as of July 28, 2000, as amended and restated as of January 29, 2002, between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|
10.4
|
Amended and Restated Security Agreement dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit 10.42 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|
10.5
|
Amended and Restated Pledge Agreement dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. (filed as Exhibit 10.43 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|
10.6
|
Amended and Restated Intercreditor Agreement dated as of July 28, 2000 as amended and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and Reading International, Inc. and Nationwide Theatres Corp. (filed as Exhibit 10.44 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|
10.7
|
Guaranty dated July 28, 2000 by Michael R. Forman and James J. Cotter in favor of Citadel Cinemas, Inc. and Citadel Realty, Inc. (filed as Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|
10.8
|
Theater Management Agreement, effective as January 1, 2002, between Liberty Theaters, Inc. and OBI LLC (filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|
10.9
|
Omnibus Amendment Agreement, dated as of October 22, 2003, between Citadel Cinemas, Inc., Sutton Hill Capital, L.L.C., Nationwide Theatres Corp., Sutton Hill Associates, and Reading International, Inc. (filed as Exhibit 10.49 to the Company’s report on Form 10-Q for the period ended September 30, 2003, and incorporated herein by reference).
|
10.10
|
Assignment and Assumption of Lease between Sutton Hill Capital L.L.C. and Sutton Hill Properties, LLC dated as of September 19, 2005 (filed as exhibit 10.56 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).
|
10.11
|
License and Option Agreement between Sutton Hill Properties, LLC and Sutton Hill Capital L.L.C. dated as of September 19, 2005 (filed as exhibit 10.57 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).
|
10.12
|
Second Amendment to Amended and Restated Master Operating Lease dated as of September 1, 2005 (filed as exhibit 10.58 to the Company’s report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).
|
|
Purchase Agreement, dated February 5, 2007, among Reading International, Inc., Reading International Trust I, and Kodiak Warehouse JPM LLC (filed as Exhibit 10.1 to the Company’s report on Form 8-K filed on February 9, 2007, and incorporated herein by reference).
|
10.14
|
Amended and Restated Declaration of Trust, dated February 5, 2007, among Reading International Inc., as sponsor, the Administrators named therein, and Wells Fargo Bank, N.A., as property trustee, and Wells Fargo Delaware Trust Company as Delaware trustee (filed as Exhibit 10.2 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).
|
10.15
|
Indenture among Reading International, Inc., Reading New Zealand Limited, and Wells Fargo Bank, N.A., as indenture trustee (filed as Exhibit 10.4 to the Company’s report on Form 8-K dated February 5, 2007, and incorporated herein by reference).
|
10.16*
|
Employment Agreement, dated December 28, 2006, between Reading International, Inc. and John Hunter (filed as Exhibit 10.66 to the Company’s report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference).
|
10.17
|
Reading Guaranty Agreement dated February 21, 2008 among Consolidated Amusement Theatres, Inc., a Nevada corporation, General Electric Capital Corporation, and GE Capital Markets, Inc. (filed as Exhibit 10.73 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).
|
10.18
|
Pledge and Security Agreement dated February 22, 2008 by Reading Consolidated Holdings, Inc. in favor of Nationwide Theatres Corp (filed as Exhibit 10.74 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).
|
10.19
|
Promissory Note dated February 22, 2008 by Reading Consolidated Holdings, Inc. in favor of Nationwide Theatres Corp. (filed as Exhibit 10.75 to the Company’s report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).
|
10.20*
|
Form of Indemnification Agreement, as routinely granted to the Company’s officers and directors (filed as Exhibit 10.77 to the Company’s report on Form 10-Q for the period ended September 30, 2008, and incorporated herein by reference).
|
10.21
|
Third Amendment to Amended and Restated Master Operating Lease Agreement, dated June 29, 2010, between Sutton Hill Capital, L.L.C. and Citadel Cinemas, Inc. (filed as Exhibit 10.21 to the Company’s report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference).
|
10.22
|
Amended and Restated Purchase Money Installment Sale Note, dated September 19, 2005, as amended and restated as of June 29, 2010, by Sutton Hill Properties, LLC in favor of Sutton Hill Capital, L.L.C. (filed as Exhibit 10.22 to the Company’s report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference).
|
10.23
|
Amended and Restated Credit Agreement dated February 21, 2008, as amended and restated as of November 30, 2010, among Consolidated Entertainment, Inc., General Electric Capital Corporation, and GE Capital Markets, Inc. (filed as Exhibit 10.23 to the Company’s report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference).
|
10.24
|
Bill Acceptance and Discount & Bank Guarantee Facility Agreement dated June 24, 2011, among Reading Entertainment Australia Pty Ltd and National Australia Bank Limited (filed as Exhibit 10.24 to the Company’s report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
|
10.25
|
Property Finance Wholesale Term Loan Facility dated June 20, 2007, among Reading Courtenay Central Limited and Westpac New Zealand Limited (filed as Exhibit 10.25 to the Company’s report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
|
10.26
|
Letter dated May 6, 2009, amending Property Finance Wholesale Term Loan Facility dated June 20, 2007, among Reading Courtenay Central Limited and Westpac New Zealand Limited (filed as Exhibit 10.26 to the Company’s report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
|
10.27
|
Letter dated February 8, 2012, amending Property Finance Wholesale Term Loan Facility dated June 20, 2007, among Reading Courtenay Central Limited and Westpac New Zealand Limited (filed as Exhibit 10.27 to the Company’s report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
|
10.28
|
Amended and Restated Note dated June 28, 2012 among Sutton Hill Properties, LLC in favor of Sovereign Bank, N.A., amending Promissory Note dated June 27, 2007, by Sutton Hill Properties, LLC in favor of Eurohypo AG, New York Branch (filed as Exhibit 10.1 to the Company’s report on Form 10-Q for the period ended June 30, 2012, and incorporated herein by reference).
|
10.29
|
Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (“Agreement”) dated June 28, 2012 among Sutton Hill Properties, LLC in favor of Sovereign Bank, N.A., amending Agreement dated June 27, 2007, by Sutton Hill Properties, LLC in favor of Eurohypo AG, New York Branch (filed as Exhibit 10.2 to the Company’s report on Form 10-Q for the period ended June 30, 2012, and incorporated herein by reference).
|
10.30
|
Credit Agreement entered into as of October 31, 2012, among Consolidated Entertainment, LLC and Bank of America (filed as Exhibit 99.1 to the Company’s report on Form 8-K dated October 31, 2012, and incorporated herein by reference).
|
10.31
|
Master Lease Agreement dated October 26, 2012, between Consolidated Cinema Services LLC and Banc of America Leasing & Capital, LLC (filed herewith).
|
10.32
|
Amendment dated October 31, 2012 to the Master Lease Agreement dated October 26, 2012, between Consolidated Cinema Services LLC and Banc of America Leasing & Capital, LLC (filed herewith).
|
21
|
List of Subsidiaries (filed herewith).
|
23.1
|
Consent of Independent Auditors, Grant Thornton LLP (filed herewith).
|
23.2
|
Consent of Independent Auditors, Deloitte & Touche LLP (filed herewith).
|
23.3
|
Consent of Independent Auditors, KPMG Australia (filed herewith).
|
31.1
|
Certification of Principal
Executive Officer dated March 19
, 2013 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
31.2
|
Certification of Principal
Financial Officer dated March 19
, 2013 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
32.1
|
Certification of Principal
Executive Officer dated March 19
, 2013 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
32.2
|
Certification of Principal
Financial Officer dated March 19
, 2013 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
101.CAL
|
XBRL Taxonomy Extension Calculation
|
101.DEF
|
XBRL Taxonomy Extension Definition
|
101.LAB
|
XBRL Taxonomy Extension Labels
|
101.PRE
|
XBRL Taxonomy Extension Presentation
*These exhibits constitute the executive compensation plans and arrangements of the Company.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
READING INTERNATIONAL, INC.
(Registrant)
|
|
|
Date:
March 19
, 201
3
|
By:
|
/s/ Andrzej Matyczynski
|
|
|
Andrzej Matyczynski
|
|
|
Chief Financial Officer and Treasurer
|
|
|
(Principal Financial and Accounting Officer)
|
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
Signature
|
Title(s)
|
Date
|
|
|
|
/s/ James J. Cotter
|
Chairman of the Board and Director and Chief Executive Officer
|
March 19
, 201
3
|
James J. Cotter
|
|
|
|
|
|
/s/ Andrzej Matyczynski
|
Principal Financial and Accounting Officer
|
March 19
, 201
3
|
Andrzej Matyczynski
|
|
|
|
|
|
/s/ James J. Cotter, Jr.
|
Director
|
March 19
, 2013
|
James J. Cotter, Jr.
|
|
|
|
|
|
/s/ Margaret Cotter
|
Director
|
March 19
, 2013
|
Margaret Cotter
|
|
|
|
|
|
/s/ William D. Gould
|
Director
|
March 19
, 2013
|
William D. Gould
|
|
|
|
|
|
/s/ Edward L. Kane
|
Director
|
March 19
, 2013
|
Edward L Kane
|
|
|
|
|
|
/s/ Douglas J. McEachern
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Director
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March 19
, 2013
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Douglas J. McEachern
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/s/ Tim Storey
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Director
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March 19
, 2013
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Tim Storey
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/s/ Alfred Villaseñor
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Director
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March 19
, 2013
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Alfred Villaseñor
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